Dr. Reddy's Laboratories Limited (RDY) Q3 2010 Earnings Report, Transcript and Summary

Ladies and gentlemen, good morning and good evening. Welcome to the Dr. Reddy's Q3 FY10 earnings call. As a reminder, for the duration of the presentation, all participants are in a listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. (Operator instructions) At this time, I would like to hand the proceedings over to Mr. Kedar Upadhye of Dr. Reddy’s. Thank you, and over to you, sir.

Thank you Rochelle. Good morning and good evening to all the participants and welcome to Dr. Reddy’s earnings conference call for the third quarter ended December 31, 2009. We hope you have all had a chance to review our press release, which was issued earlier this afternoon. The results are also posted on our Website on the homepage under the Quick Links icon. To ensure full disclosure, we are conducting a live webcast of this call and a replay of the call will also be available on our Website soon after the conclusion. Additionally, the transcript of this call will be made available on our Website at www.drreddys.com. Please note that all discussions and comparisons during the call will be based on IFRS consolidated financials and the IR Desk will be available to answer any query relating to the Indian GAAP immediately after the conclusion. To discuss the results and outlook, we have on the call today, GV Prasad, our Chief Executive Officer; Satish Reddy, our Chief Operating Officer; and Umang Vohra, our Chief Financial Officer. Please note that today’s call is copyrighted material of Dr. Reddy’s and cannot be rebroadcast or attributed in press or media outlets without the company’s expressed written consent. Before we proceed with the call, I would like to remind everyone that the Safe Harbor language contained in today’s press release also pertains to this conference call and the webcast. I would now like to turn the call over to Umang Vohra.

Thanks Kedar. I welcome all of you on the call today. Before I begin, I would like to mention that all the figures referred in the financial highlights section are translated at the convenience rate of 1 US dollar to 46.40 Rupees. The financial highlights for the quarter and YTD are as follows. Revenues for this quarter are at $373 million, representing a year-on-year decline of 6%. Excluding the revenues from sumatriptan in the previous year, the growth is at 17%. Revenues for the nine months at $1.2 billion represent a growth of 9%. Revenues from Global Generics business at $253 million declined by 14% for the quarter. Excluding the revenues from sumatriptan in the previous year, the growth was at 16%. Revenues for the nine months at $807 million represent a growth of 7%. In our PSAI business, revenues at $113 million for the quarter represented a growth of 17%. Revenues for the nine months at $334 million represented a growth of 11%. Gross profit for the quarter at the company level is at 51% as against 56% in the previous year. The change in gross margins is on account of a favorable mix of high margin revenues from sumatriptan that occurred in the previous year. Gross margins for our nine months are at 51%. With this segment, margins for Global Generics and PSAI segments are at 60% and 31% respectively. EBITDA is at $79 million for the quarter. For the nine months this year, EBITDA at $255 million grew by 31% versus last year. SG&A expenses excluding amortization for the quarter are at $109 million, and these are flat as compared to both the previous year and sequentially. This reflects a benefit of operating leverage and cost management initiatives carried out during the last several quarters. In March…

Thanks Umang. So for this quarter’s results, you will notice that we have continued to demonstrate our ability to grow our topline and bottom line consistently. This is despite the actions of any large forward opportunity this financial year. Within the Global Generics business, the growth and revenues from branded markets has helped us offset the decline in revenues from the regulated generic markets. Overall revenues from the Global Generics segment at $253 million grew by 16% year-on-year, excluding the sumatriptan revenues in the previous year. As most of you are aware, in November 2009, the US FDA conducted the scheduled audits at two of our finished dosage facilities. But there was one minor observation at one of the dosage facilities, the existing open list of inspection in the Form 483 have been declared to be removed for the other unit, which is an injectable facility. The positive outcome from these audits reflect and reinforced our capabilities in maintaining robust quality and compliance processes. Let me now take you through our key markets starting with North America. Revenues for the quarter at $64 million in North America represent a decline of 53% from the previous year. Excluding the sales from sumatriptan in the previous year, the year-on-year growth was flat. In September of this fiscal year, one lot each of four of our products were voluntarily recalled by us. This caused a temporary slowdown of production, resulting in the diversification of supply forces by a few of our customers. As a result, our base business revenues have been flat for this quarter. We have filed our investigation with the US FDA, and we have addressed all the issues along with necessary, corrective and preventive measures to avoid such instances in the future. Post the successful US FDA inspection and clearing…

Thank you Satish. I would like to begin my discussion by briefing you on some key senior management changes in the last few months. To achieve our stated goal of $3 billion of revenue at an RoCE of 25% by fiscal ’13, we realized the need to strengthen our organization. As part of this process, we have made a few changes in our senior management team. Saumen Chakraborty, who earlier headed Corporate and Global Generics Operations will henceforth function as President Corporate and will focus on the integration of people, processes and information across the organization to facilitate a culture of total quality, execution excellence and high performance. Abhijit Mukherjee, who you know as the Head of the PSAI business, the Pharmaceutical Services and Active Ingredients business, will now lead our Global Generics business end-to-end, and we believe that this dedication of a senior leader to integrating the entire business will make a big difference to our Global Generics business. In addition to these, there have been few other changes in our North America and Proprietary Products organization. Moving on to other business highlights, you would observe from this quarter’s performance that PSAI as well as the key markets of India and Russia have contributed to significant growth. Germany continues to remain a challenge, and we are of course initiating suitable measure to mitigate the impact to cash flow from their business. Based on our results for the first nine months, we now feel that our full-year revenues are expected to be lower due to the decline in Germany, delay of a few of our key launches in the US, and temporary loss of revenues in Europe due to recall related incidents. In view of this, we now expect a lower single-digit growth in revenues for the full year as…

(Operator instructions) The first question comes from the line of William Kirby from Nevsky Capital. Please go ahead. William Kirby – Nevsky Capital: Thank you, yes. I have two questions, please. Firstly, on Russian revenues, is the increase, how much of that is due to re-stocking or other effects or is that a clean level of underlying demand? And then secondly, inflation in general and administrative expenses seems to have come down quite a lot, how should we think about that as a percentage of revenues in future years plays?

So, in Russia, I think half of the growth is on account of pricing, which was related to the devaluation of the Ruble, and the other is due to the season effect. So, we probably will see, this is a maybe a very high quarter for Russia. On SG&A, we have optimized the business model in Germany and certain other R&D units as a result of which the SG&A level has stabilized at the current level. So, we are not guiding to any future periods to our percentage, but because of the last two to three quarters, this number of what you are seeing in SG&A of about 5,000 million [ph] is maintained. William Kirby – Nevsky Capital: Okay, great. Thanks very much.

Thanks you Mr. Kirby. The next question comes from the line of Balaji Prasad from Goldman Sachs. Please go ahead. Balaji Prasad – Goldman Sachs: Hi good evening everyone. I have two questions. Firstly, on the US launches delay, any specific reason as to why that you can see about this, for this, and secondly, when do you expect each of these to come on to the market? And my second question is on Betapharm, do you see any further write-off in the beta brand coming to in the near future?

With respect to the launches delay, this is a combination of both internal and external factors. I think the delay should result in our launching of Q1 next fiscal as opposed to this quarter. Balaji Prasad – Goldman Sachs: Which of these products would be coming on to the market in Q1?

Some of our products, I don’t want to name them right now, but a couple of products which should have been launched in this quarter have got pushed out to the next quarter. Balaji Prasad – Goldman Sachs: Okay.

So, with respect to Betapharm, now the carrying value is about 93 million Euros. Balaji Prasad – Goldman Sachs: All right.

At this level, we think we are comfortable that there should not be any further, you know, impairment if the level of performance remains at what we expected to be. But having said that, this is an evolving market, and I don’t want to make any categorical statements. Balaji Prasad – Goldman Sachs: Fair enough. If I could just ask further on the GSK alliance, you are planning to enter the Mexican market with this, with this alliance, what is the rationale behind choosing this market and how are you going about choosing the products to launch this market, and what is the strategy encapsulate in total, as in one to two years, what could this mean in terms of revenues for year-end?

Yes, so the alliance is aimed at us supplying products of GSK for all its emerging markets. It also preserves our right to enter these markets whenever we want. But as a company, we decided that we would focus on five major markets and try to drive growth in these five markets before we really expand our geographic footprint. We of course have other Tier 2 markets, about another ten markets, but the primary focus is on these five markets. This enables us to concentrate our resources, execute better and also prioritize better. So, the logic of working with GSK is that we would supply them product and they would do all the front-end in marketing. And because of their global presence, for them the incremental cost of setting up front-end is very small. In addition, they have the advantage of having innovative products for any products based on which they can piggyback and sell branded generics. So, this is basically the strategic rationale for the alliance. It started registering products in various markets. The big markets are of course, Turkey, Brazil, and Mexico. There are few other markets, but these three will primarily derive the initial activity. We are just launching products in Mexico later this year. It’s not going to be significant for the first year, even end of second year, I don’t think is very significant. In third year onwards, we will see meaningful numbers. Balaji Prasad – Goldman Sachs: Okay. Thank you very much. Thank you.

Thanks.

Thank you Mr. Prasad. The next question comes from the line of Krish Nandu [ph] from Quantum [ph]. Please go ahead. Krish Nandu – Quantum: Good evening. Hello?

Yes, good evening. Krish Nandu – Quantum: Good evening. Just had two questions. In reason to R&D expenditure, it is, correct me if I am wrong, it’s down from a QonQ basis. I am asking this question just because you had a change of agreement with your signs for this Balaglitazone expenditure.

Yes. Krish Nandu – Quantum: So, that’s one question, if you could put some light on that. And what would be the amount, what would be the breakup of the CPS and API in the PSAI, if you could just give me or help me out with this figure, please?

Yes. So, I think R&D expense is not related to the Balaglitazone change, it is more related to phasing of our bio study. You know, the cost of the bio study is a major component of our R&D budgets, and they come bunched up. So, part of that will be incurred in Q3, in Q4, and then Q1 later. So, that’s nearly a phasing of expenditure. It doesn’t signal anything beyond that. Krish Nandu – Quantum: Any guidance you can give us on what expenditure would be incurred in the Phase III, which are going to be conducted?

We are not going to fund that. So, we have to wait and see, and I think we will only know once the regulator comes back and defines what kind of trial is necessary for approval of this product, and we are not even sure we will fund it ourselves or our partner, we may then get to a third party. In terms of R&D spend as a percentage, I think it will be or it will hover around 5%. Krish Nandu – Quantum: Okay. And say, about the breakup of CPS and API in the PSAI business, could you just –?

We are not disclosing that level of detail. Krish Nandu – Quantum: Okay, okay. Thank you. I will get back in the queue.

Thank you.

Thank you. The next question comes from the line of Surjit Pal [ph] from LRR Capital [ph]. Please go ahead. Surjit Pal – LRR Capital: Yes, thanks for taking my question. My first thing is that, that you at least faced a de-growth of around 10% in the US market, even if I remove those, you know, Imitrex sales in this quarter?

That was slightly below last year’s sales, a very marginal level. Surjit Pal – LRR Capital: I mean, you see, last time you said that it was around $72 million of last year same quarter sales of Imitrex, out of 143, if you say 51 million that is for the base business, you have had 64 [ph], which is also inclusive of your business in Omeprazole OTC. So, at least around 10% kind of de-growth you are seeing in this quarter, right?

Around 3%.

3% in Rupee terms and 1% in dollar terms.

Yes. Surjit Pal – LRR Capital: How much loss you have accounted for recall in US market?

We are not sharing that level of detail. The loss of recall itself is not significant. I think this had to say that more bigger impact is the slowdown in sales as a result of the various actions that we had to take. The actual recall is not very significant in terms of cost. Surjit Pal – LRR Capital: Any particular reason for your particular growth in domestic glyceride [ph] market.

Surjit Pal – LRR Capital: Any new customer additions?

No, not really. I think also you must recognize that last year’s performance was a little at a lower base. Surjit Pal – LRR Capital: Lower base, yes.

As a result of destocking that happened as a result of our change in distribution. Surjit Pal – LRR Capital: Thank you. I will get back in queue.

Thank you.

Thank you Mr. Pal. The next question comes from the line of Anubhav Aggarwal from Credit Suisse. Please go ahead. Anubhav Aggarwal – Credit Suisse: Yes, this is a question on Omeprazole OTC sales. You did mention that, what was the reason for the delay in launch, and what was the reason for a very tentative beginning? I mean, are we –?

Yes, firstly, I think the OTC don’t behave in the same way as the generic products, because the OTC products have packaging and a few other artwork all of the visuals and switching sources is not as quick as you switch the generic product. Having said that, I think we have some internal issues in terms of equipment, delays in scale off and all of those. So, that delayed, you know, the launch itself, but uptake also I think because of delay, somewhat, you know customers are a little more tentative, but now we see that picking up and we should start picking up share reasonably to deal that. Anubhav Aggarwal – Credit Suisse: So, is this share that is going to come out of new customers or share within customers?

It’s both. Anubhav Aggarwal – Credit Suisse: Right. Now, what I am trying to understand is have you already entered the larger customers or are they still to be signed up?

I think, you know, it’s a mix of both, existing as well as non-existing. Anubhav Aggarwal – Credit Suisse: And trying my luck here, any share targets that you could disclose?

No. Anubhav Aggarwal – Credit Suisse: Any update on (inaudible)?

No update as such. I think the regulatory review is going on. So, we haven’t had any formal response on our application yet. But we are all geared up to, you know, quickly turn around any request that may come, and we believe that next fiscal year, we will launch this product. Anubhav Aggarwal – Credit Suisse: Right. But there was this, under the give initiative, that FDA was required to process this within six months or something right?

In an accelerated way. It is still in that process. But it is a reasonably complex product, so. Anubhav Aggarwal – Credit Suisse: It is, okay. I will jump back into queue, thanks.

Thank you Mr. Aggarwal. The next question comes from the line of Ranjit Kapadia from HDFC. Please go ahead. Ranjit Kapadia – HDFC: Good evening. And sir, my question relates to this Omeprazole Magnesium. You said that we have already started with one of the customer, so going further, what are the plans, and how many more customers you are likely to add? Second question regarding domestic market, you have done a very good growth of 34% for the formulation and about 30% for the API segment. So, going further, what are your plans to address this market?

You know, the Omeprazole issue, I think we already answered that we are going to drive growth through both new customers and all other existing ones. On the Indian market, we have a few initiatives. Would you like to talk about that, Satish, the rural initiatives?

Couple of things I see, one is the supply chain initiative that we have done earlier. So, that achieved, created a certain base on which you are seeing this kind of a growth. So, it’s a low base on the growth what you see. Second thing is the rural markets initiative that we had commenced on a pilot basis last year, but now, this year we have the full benefit, because we have scale of the field force and that’s beginning to show the results. The new products, it’s been the most prolific year of new product launches, already about 56 have been launched, right. So, all of the factors put together plus very close targeting of customers, expanding the base as well as very clear targeting for the marketing divisions all put together has given us this kind of a growth. And on the API side, I don’t think we have disclosed any such numbers, or going to vary by the figure [ph] of 30%. Ranjit Kapadia – HDFC: Sir, can you share how many MRs [ph] are there, field force, strength?

1,200 on our rolls and 800 on the contract field force. Ranjit Kapadia – HDFC: 800 and –?

2,000 totally.

Totally 2,000. Ranjit Kapadia – HDFC: Okay, 1,200 on the rolls and 800 contract.

Yes. Ranjit Kapadia – HDFC:

Thank you.

Thank you.

Thank you Mr. Kapadia. The next question comes from the line of Ashraf Riyaz [ph] from MK Global. Please go ahead. Ashraf Riyaz – MK Global: Yes, good evening. My question is regarding this operating margins. We have seen significant improvement at Imitrex operating margins almost 50 to 60 bps, is this margins sustainable going forward?

Yes, we have seen two or three quarters in which the base business has improved quite dramatically and we believe that these margins are slightly sustainable going forward. Ashraf Riyaz – MK Global: Okay. And the second thing like, you know, from early, talking about our growth in the Russian market, will you say that 15% growth came because of (inaudible) remaining growth was basically on the volume and the value?

I will just rephrase what I said. I said that linked through the devaluation, we took pricing increases, which accounts for more than 50% of the growth you have seen. Ashraf Riyaz – MK Global: Okay. And what was the volume growth?

The volume growth is half of it, is about 25%. Ashraf Riyaz – MK Global: 25%. Thank you very much. And that’s all from my side.

Thank you. The next question comes from the line of Ritesh Shah from IDFC-SSKI. Please go ahead. Ritesh Shah – IDFC-SSKI: Hi, good evening. Thanks for taking the question. Two questions, one is, a, you know, with the Sanofi now planning to take Fexofenadine OTC, does it or how is this really paying out for us given that, you know, Fexofenadine still is a pretty relevant component product for us in the US?

I think, you know, the OTC will only expand the market. I don’t think it will cannibalize the prescription market. Ritesh Shah – IDFC-SSKI: So, in terms of our ability to hold on the industry, that won’t really, that won’t get impacted.

I don’t think that will get impacted. It may even throw up some opportunities from the OTC perspective. Ritesh Shah – IDFC-SSKI: And you mentioned early on in the opening comments about likely Fexofenadine combination launches, when do you see those happening?

First quarter or second quarter. Ritesh Shah – IDFC-SSKI: This would be both the combinations or –?

One of them. Ritesh Shah – IDFC-SSKI: Okay. And lastly, you know, you mentioned about injectable facility, the four of these kind of been revoked, have you started getting approvals for them, for this facility or when do you expect approvals?

Yes, we are awaiting some approvals. I think the FDA inspection is over, now the inspection report us to go through the process and then we should see some approvals. Ritesh Shah – IDFC-SSKI: This would be a cytotoxic facility?

Yes. Ritesh Shah – IDFC-SSKI: Thanks very much.

Thank you.

Thank you Mr. Shah. The next question comes from the line of Rahul Sharma from Rahul Sharma from Karvy Stock Broking. Please go ahead. Rahul Sharma – Karvy Stock Broking: Hello. Just wanted to know, do you think the run rate what we are talking in, in the domestic formulation space is sustainable going forward?

Yes, I believe it’s sustainable, because if you see the pure month-on-month trend, right, consistently we have been growing above the market growth rates, which also I believe is going to grow, the industry will continue to grow on the back of new product launches and you know, expansion of the markets itself, right, into the country. So, we actually believe it’s substantial. Rahul Sharma – Karvy Stock Broking: At around 250 to 260 [ph] for third quarter basically?

Yes. Rahul Sharma – Karvy Stock Broking: And Europe has been in the PSAI segment. Europe has been doing particularly since the last two or three quarters. What can you attribute this to and how did you foresee it going ahead?

So, there are a few products for which we have a very high market share due to the process-related issues in the sense that we have processes which is non-intrinsic. As a result of that product and one or two other such products, the Europe share is high. Rahul Sharma – Karvy Stock Broking: So, how long do you think you will be able to sustain this type of traction?

We have several other products in the pipeline as well. So, we believe that, you know, there will be a moving traction could be sustained. Rahul Sharma – Karvy Stock Broking: And just wanted a clarity on the forex hedges, what rates we have basically contracted the hedges?

We are in the range of, as an average, it could take 47 to 48, but our range is from 46 to 52. Rahul Sharma – Karvy Stock Broking: Okay. And this would be on 394 million of forward covers?

This would be 394 million of options, primarily options, for options next year alone. Rahul Sharma – Karvy Stock Broking: Okay. And what about forex loans would be, how much from books as of now?

We have a Euro loan of about 161 million Euros. Rahul Sharma – Karvy Stock Broking: Okay.

Nothing more than that. Rahul Sharma – Karvy Stock Broking: Okay. Thank you.

Thank you. The next question comes from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead. Sameer Baisiwala – Morgan Stanley: Hi, good evening everyone. My question is about the German business that once AOK and non-AOK tender business are fully operational, what could be the level of business that we can expect in Germany versus say 200 crores [ph] that we did in the previous quarter?

I don’t think we are giving precise numbers, but we expect this to shrink a little going forward. Sameer Baisiwala – Morgan Stanley: Okay. I mean, when you say it shrink a little, it contrasts from the sharp of write-offs that we have been taking, I mean, if I –?

When I say a little, it’s you know, I am not able to give you a range, but we expect some shrink. Sameer Baisiwala – Morgan Stanley: Okay. I mean, if I were to ask more directly, would it be a significant shrinkage, like, I mean you may not give me a number, but –?

I think it is significant, because we expect it to be significant and that is what has caused the write-off. Sameer Baisiwala – Morgan Stanley: Okay.

But it is not going to be material to the company and as a whole. That’s why I said little. But for Germany, it may be significant. Sameer Baisiwala – Morgan Stanley: Okay. And the other question is about the US business specifically fixed over there, it seems to be a very sharp, you know, collapse in the market share. And you mentioned the context of US, there’s a temporary slowdown. Are they two correlated or fixed is going to remain –?

I think it’s more a loss of a customer than a market shrinking. And that may be, you know, shrinking our market share. But I don’t think it has anything to do with the OTC or anything else. Sameer Baisiwala – Morgan Stanley: Okay. But do you think this much slower market share is going to go up or this is where it’s going to set back?

We hope to recover it as we improve everything that we are doing here. We hope to recover it. This is part of the collateral damage of the recall. Sameer Baisiwala – Morgan Stanley: Okay. And just a very broad-level question, this quarter was –

This is the operator. Sir, would it be possible for you to come back with follow-up questions as there are other –? Sameer Baisiwala – Morgan Stanley: Just one final question if you don’t mind.

Yes. Sameer Baisiwala – Morgan Stanley: Okay. I mean, this quarter was – the quarter gone by was rather free of any one-offs and stuff like that and we reported a net profit of roughly 2.3 billion Rupees. Is this something that, that we should expect as an earnings power of the base business in a more normalized earnings?

I certainly think so. While we didn’t have any one-offs, we did have some hits, especially Germany was lower than projected internally and US also suffered somewhat. But it’s safe to assume this number as a base number. Sameer Baisiwala – Morgan Stanley: Excellent, thank you so much.

Thank you.

Thank you. The next question comes from the line of Bhavin Shah from Dolat Capital. Please go ahead. Bhavin Shah – Dolat Capital: Hi, thanks for taking my question. Sir, just one small question, will the work for the Betapharm currently and was the plan of cutting down, I mean, since you have mentioned in your presentation?

So, Betapharm currently has about 250 people, and we are in discussions with the Works Council to take this number closer to between 80 to 100. Bhavin Shah – Dolat Capital: Okay. And this sharp cut down will happen by about, in another one-and-a-half years or timeframe roughly?

No, shorter than that. Maybe three to six months. Bhavin Shah – Dolat Capital: Shorter than that, great. Okay, thanks a lot. That was it.

Thank you Mr. Shah. The next question comes from the line of Vikas Sonawane from Religare. Please go ahead. Vikas Sonawane – Religare: Yes, hi, thanks for taking my question. My question is on balance sheet. We have seen consistent improvement in balance sheet in terms of net debt over the period of last five quarters’ time, do we preside net debt has gone down by about 60%. So, going forward, you know, how do you intend to look at the net debt level or you could probably see stable number from here on?

The decrease in net debt is largely linked to repayment of our Euro loan that we have taken for acquisition of Betapharm. We had an agreed prepayment schedule, and in a period of next one to two years, this loan will get completely repaid. Vikas Sonawane – Religare: Okay. So, let’s say in others, three or four quarters, we can probably be a net debt zero company?

This has to be part in terms of the aggressive capital plan that we have. We are building two large facilities for API and (inaudible). We are also investing in a bio central lab facility. Subject to this, I think capacity load still remain quite strongly. Vikas Sonawane – Religare: Okay, great, that’s great. I mean, small question, I mean, UK market, I mean its’ a small market, but it was growing pretty well for the last two quarters, how has that growth been this quarter?

We will come back to you, you know. Vikas Sonawane – Religare: Okay. Final question, what is the general timeline to take the biological drug from, let’s say Indian market to RoW market?

Some of that has been happening already and in the process of registration in a few markets. So, we should see some revenue coming in or a small amount of revenue coming in this year, maybe increasing next year and more significantly in the following year. Vikas Sonawane – Religare: Okay. Great, thanks.

Thank you. The next question comes from the line of Sonal Gupta from UBS Securities. Please go ahead. Sonal Gupta – UBS Securities: Question one, could you tell us the gross margins for the two divisions for this quarter?

Yes, gross margin for Global Generics is 60% and PSAI is 31%. Sonal Gupta – UBS Securities: Okay. And just also wanted to understand post these write-offs, your RoCE target will remain at 25% or should we expect it to go up as and when you revise that?

We are guided to 25 basis the March value. Sonal Gupta – UBS Securities: Right.

And therefore it could be expected to be slightly higher than 25, but it will not make too much of a difference because what we have written off is probably less than 10% of the staff we employed. Sonal Gupta – UBS Securities: Right. And on Germany, just to understand, I mean, your sales have over the last few quarters sustained at sort of reasonable levels, given that you are saying that the market probably will move towards, completely towards tender, what percentage of this sales do you think will come from the tender business or is there still some business which will be non-tender based or do you think it will be totally tender based?

A significant portion of that will necessarily move towards the tender based business, right. So, however a small portion maybe, some of the OTC products and some portion of the business which is non-tender, that will continue to exist. Sonal Gupta – UBS Securities: And do you intend to have a sales force, I mean post the –?

No, the sales force is gone. Sonal Gupta – UBS Securities: Okay, thank you so much. I will get back in queue/

Thank you Mr. Gupta. The next question comes from the line of Rajesh Vohra from ICICI Securities. Please go ahead. Rajesh Vohra – ICICI Securities: Good evening gentlemen, congrats on a good set of number. Mr. Prasad, the first – you mentioned about the full-year guidance of 10% will not be met and the topline growth will be low-single digits, which means that in the first nine months, you have grown at 9% to $1.2 billion. So, it has to be – are you saying that lower than that number, is that what you are indicating, implying a decline in the growth rate?

For the fourth quarter of last year, it was significantly higher. Rajesh Vohra – ICICI Securities: Sure.

Because of the full effect of sumatriptan. Rajesh Vohra – ICICI Securities: Sure.

Relative to that, the growth will come down. So, the overall level, it will get impacted. Rajesh Vohra – ICICI Securities: Okay. So, for the full year, it will be single digit wherever it comes up.

Yes. Rajesh Vohra – ICICI Securities: Yes. And you have mentioned about $3 billion number, you stick to that goal of doubling roughly in the next three years. What would be the key drivers of growth, of course you have a pretty good set of pipeline for FTFs and interesting ANDA opportunities, beyond that, what are the growth drivers going to be?

So, you know, it is difficult to give you in such specific level, but the large growth will come from our Global Generics market. And US will probably be the largest driver of growth, and after that, the RoW markets. We are also seeing significant growth in our Pharmaceutical Services and Active Ingredients business. Rajesh Vohra – ICICI Securities: Okay, and could you tell us on Allegra D-12, would it be two, three-player scenario or more player depending on what visibility you have today?

I don’t think we can predict that very well. Rajesh Vohra – ICICI Securities: Sure. And last question on, given what you have mentioned so far on the call on Germany business, what is the extent of price cut that we have seen far in the recent time, and you are saying significant drop further in the revenues potentially, what are we building that number, is it in excess of 20%, more or less?

We can’t use a block percentage like that. Rajesh Vohra – ICICI Securities: Sure.

There are many variables in order, the tender, the competition, the molecule. Where you end up is a function of many things, I don’t want to hazard a guess and give you something. Rajesh Vohra – ICICI Securities: Okay, thanks. All the best.

Thank you. The next question is a follow-up question from the line of Balaji Prasad from Goldman Sachs. Please go ahead. Balaji Prasad – Goldman Sachs: Hi. Thank you for taking my follow-up question gentlemen. I just had a couple of queries on Balaglitazone. Firstly wanted to understand the level of glycemic control, which you had targeted and how does this compare versus other PPAR agonists? Second question was, wanted to understand also which stage of patient recruitment is the study right now, and lastly just wanted to see if you had any side-effect profile which has been, which has come out at this point of time?

Sure, we did a one Phase III study with 400 patients. Glycemic control is comparable to act those. Balaji Prasad – Goldman Sachs: Okay.

And the safety profile, again, it’s only based on this 400 patients. It shows some level of improvement, both in the weight gain as well as the bone density, but this has to be further studied in terms of clinical significance and statistical significance. So, we have to do additional trials to demonstrate the safety. The positioning would be that similar to the existing glitazones in terms of efficacy, that we can improve safety profile. And this needs to be demonstrated in safety. Balaji Prasad – Goldman Sachs: Okay. Would you have any duration in how long this could take?

We are going to meet the regulators this month, and we will get input into how their trial design has been. And after that, we will formulate our plans, right now, we don’t have. Balaji Prasad – Goldman Sachs: Okay, great, and good luck on this. Thank you.

Thank you so much.

Thank you. The next question comes from the line of Bino Pathiparampil from IIFL. Please go ahead. Bino Pathiparampil – IIFL: Hi, thanks for taking the question. Just to dig a little deeper into the issue in the US, we see that there is a significant decline over the previous quarter’s level of sale in the US. So, when you said that you are working on some strategy to get back that business, is it over a few months’ period, or do you think it’s like two-week or three-week thing, which you can fix out of that then and back the customer?

So, we don’t have any issue as such. It’s just that voluntary recall resulted in some slowdown on our side in terms of supplying the market, because we wanted to first be very sure of everything that we are doing in our operation. So, we had to suspend shipments, we had to institute quality control checks and corrective actions. We did all of that and then subsequently we had an FDA inspection and it went off quite well. But as a result, supply to the market got impacted and naturally customers hedged their position. Now, to recoup all of that, it will take more than a quarter, it will take a couple of quarters perhaps, and we are still in the process. So, it’s not going to be a quick fix, but it will take a couple of quarters. Bino Pathiparampil – IIFL: Okay. Right. And second, in Russia, over the last couple of quarters, you had been saying that some of the price increases that you took originally will have to be reversed as the Ruble appreciated. So, we don’t see any of that happening, do you think you won’t need to do that or are we going to see that in the coming quarters?

We don’t see the need to reverse prices, no. Bino Pathiparampil – IIFL: Okay. Right. And quickly a housekeeping question, the amortization of this quarter about 37 Crores or so, is that going to be the run rate for the quarters ahead?

Yes, you can assume the same run rate for the subsequent quarters. Bino Pathiparampil – IIFL: Okay. And the CapEx for the first nine months of 2.6 billion Rupees seems a little low based on your prior guidances, is that true?

Yes, I think it will increase as we go forward. Bino Pathiparampil – IIFL: Okay. So, for the full year, what would be your guidance?

I don’t think we are giving guidance on CapEx. Bino Pathiparampil – IIFL: Okay. Great, okay, thanks.

Thank you. The next question is a follow-up question from the line of Krish Nandu from Quantum. Please go ahead. Krish Nandu – Quantum: Just wanted one figure. So, how much was the insurance and UK be part of the business as a percentage of the total Betapharm right now?

About half or so. Krish Nandu – Quantum: 50% right, hello?

Roughly 50%, yes. Krish Nandu – Quantum: Thank you.

We will take the last two questions, please.

Thank you. The next question comes from the line of Sonal Gupta from UBS Securities. Please go ahead. Sonal Gupta – UBS Securities: Yes, thanks. Just to understand on the GSK alliance, is this or are all the fields going to be implemental or are there some markets where you sort of looking at getting out and probably GSK and transferring basically the product registration that gets transferred to GSK and GSK gets the – so is there some cannibalization of existing revenues?

There’s no major cannibalization, but there is a shift of existing dossiers and some very minor sales from one of the countries, we will probably shift to them. But it will be incremental, largely it will be incremental. Sonal Gupta – UBS Securities: Okay, thank you.

Thank you Mr. Gupta. The last question comes from the line of Nishant Patel from Proactive Universal Group. Please go ahead. Nishant Patel – Proactive Universal Group: Hi, thanks for taking my question. Just a quick one, what’s been the growth in the European market ex-Germany?

Can we get back to you, Nishant, with that data because there are two or three markets, and we will try to get back to you, the IR Desk will get back to you with it. Nishant Patel – Proactive Universal Group: Sure, sure, thanks.

Thank you.

Thank you.

I would now like to hand the floor back to Mr. Upadhye and the management for closing comments.

Thank you all for joining Dr. Reddy’s management for the Q3 FY10 earnings call. In case of any other queries, IR Desk is available, too for clarification. Thank you and good evening.

Thank you very much. On behalf of Dr. Reddy’s Laboratories, that concludes this conference. Thank you for joining.