Dr. Reddy's Laboratories Limited (RDY) Q2 2012 Earnings Report, Transcript and Summary

Umang Vohra - Chief Financial Officer, Member of Management Council, Senior Vice President and Chief Compliance officer Kedar Upadhye - Director Unknown Executive - Kallam Satish Reddy - Managing Director, Chief Operating Officer, Executive Director, Member of the Management Council, Chairman of Management Committee, Member of Shareholders Grievance Committee, Member of Investment Committee and Member of Strategy Committee G. V. Prasad - Executive Vice Chairman, Chief Executive Officer, Member of Management Council, Chairman of Investment Committee, Member of Strategy Committee, Member of Shareholders Grievance Committee and Member of Management Committee

Bino Pathiparampil - IIFL Research Rahul Sharma - KARVY Stock Broking Limited, Research Division Prakash Agarwal - RBS Research Anubhav Aggarwal - Crédit Suisse AG, Research Division Abhay Shanbhag - Deutsche Bank AG, Research Division Manoj Garg - Edelweiss Capital Ltd., Research Division Ranjit Kapadia - Centrum Broking Private Limited, Research Division Nimish Mehta - MP Advisors Girish Bakhru - HSBC, Research Division Saion Mukherjee - Nomura Securities Co. Ltd., Research Division Chirag Talati - Execution Noble LLC, Research Division Sameer Baisiwala - Morgan Stanley, Research Division Unknown Analyst - Surajit Pal - Elara Securities (India) Private Limited, Research Division

Ladies and gentlemen, good day, and welcome to Dr. Reddy's Laboratories Q2 FY '12 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. At this time, I would like to hand the conference over to Mr. Kedar Upadhye. Thank you, and over to you, sir.

Good morning, and good evening to all. Welcome to Dr. Reddy's earnings conference call for the second quarter ended September 30, 2011. Earlier during the day, we have released our results, and the same are also posted on our website. We are conducting a live report of this call, and the transcript shall be available on our website soon. The discussion and analysis in this call will be based on IFRS consolidated financials. To discuss the business performance and outlook, we have today G. V. Prasad, our Chief Executive Officer; Satish Reddy, our Chief Operating Officer; Umang Vohra, our Chief Financial Officer; and the 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 outlet 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 webcast. After the end of the call, in case any additional clarification is required, please feel free to get in contact with Raghavender, Milan Kalawadia or myself. I would now like to turn the call over to Umang Vohra.

Thank you, Kedar. Good morning, and good evening to everyone. I welcome all of you on the call today. I will discuss the key financial highlights. The convenience dollar rate for the quarter is at INR 49.05 per dollar, and the average dollar rate for the quarter is at INR 45.80. Due to this high variance, the convenience translated reported numbers and the local currency numbers will be different. For the purpose of my section, all the figures are at the convenience translated rate, which is at INR 49.05. However, for the purpose of the business overview section that Satish will address, the rates that will be used will be the average translation rate at INR 45.80 to the dollar. Our consolidated revenues in this quarter grew by 21% on a year-on-year basis to $462 million. Year-on-year growth for the first half of this fiscal is at 19%. Global Generics segment recorded revenues of $329 million, which represents a growth of 18% for this quarter. Pharmaceutical Services and Active Ingredients, which we shall call as PSAI in this call, recorded a healthy growth of 28% to $121 million. Our consolidated gross profit margin for this quarter is at 54%, and the margins improved slightly due to a favorable business mix. Gross margins for Global Generics are at 63% for the quarter, marginally lower compared to the previous year. Gross margins for the PSAI segment are at 28% for the quarter versus 22% for the previous year. This improvement in margins in the PSAI segment is on account of healthy growth in the sales and product mix. SG&A expenses, including amortization for the quarter, are $147 million, an increase of 26% over previous year. This increase is attributable to the following factors: higher freight costs, both on account of increase in sales volumes as well as rate increases; inflation linked to increase in manpower costs across businesses; incremental costs at Bristol and Shreveport manufacturing facilities in the U.S., where we anticipate a higher level of sales in the second half; the step-up in the OTC-related selling and marketing costs in Russia as compared to the previous year, which is in line with our strategic intent to expand the OTC portfolio. Sequentially, part of the increase in the spend is on account of the depreciation by INR 1 versus average USD rates between quarter 1 and quarter 2, and this represents an approximate value of approximately $5 million, adjusting for the interest on the bonus debentures of approximately $2.4 million and the reversal of the excess provision of $2 million after voluntary retirement scheme based on final offers made. Ad EBITDA is at $104 million and represents 23% of sales and has registered a growth group of 20% over the same period in the previous year. Adjusted EBITDA, therefore, for 6 months is at $193 million, 22% of sales, and grew by 23% over the previous year. The effective tax rate for the quarter is 17%, which is in line with our full year planned base business tax rate. Adjusted profit after tax for the quarter is at $63 million and is at 14% of sales. Adjusted profit after tax for 6 months is at $150 million and, gross, 13% over the previous year. Key balance sheet highlights are as follows. Our operating working capital has increased by $84 million from the previous quarter. The increase in inventories by $24 million is largely in anticipation of near-term launches. The increase of $70 million in receivables was largely on account of higher sales in this quarter and the revaluation of foreign currency perceived growth at the closing ForEx rates, which is almost 325 basis points higher than the average rates at which the revenue are booked. Capital expenditure for the 6 months is at $73 million. This quarter, we have borrowed $220 million at LIBOR plus 185 basis points, which we believe is a good rate for us. And this is a long-term loan. Our borrowing shall help us structure a short term to long term mix of borrowings and allow more flexibility for growth. We expect to use these proceeds to repay some of our short-term working capital loans and create more flexibility in our business model. Foreign currency cash flow hedges taken to cover the volatility on net exposure in the coming 6 quarters in the form of derivatives and offsetting loans are approximately at $775 million, hedged largely in the range of INR 45 to INR 49 a dollar. In addition to these, we have approximately $280 million of balance sheet hedges of net foreign currency assets. With this, I now request Satish to take us through the business highlights.

Thank you, Umang. The robust performance across multiple markets in this quarter has set a strong foundation for the second half of this year. A strong delivery in North America and Russian markets helped Global Generics grow by 15 points. We're also pleased to see an intensive growth in our PSAI segment on the back of both new launches as well as an improving order book status. I will now cover the business highlights for each of our key markets. Our performance analysis is based on the respective local currencies. Starting with North America Generics. We recorded a robust revenue growth of 45% with revenues of $137 million for the quarter. We're quite pleased to see consistent sequential growth for the last 6 to 7 quarters. This scale-up was possible only due to periodical new product launches as well as the gradual market share increase in existing products. For this quarter, Lansoprazole, Fondaparinux and Omeprazole Magnesium OTC were the key products which drove the growth. We believe the initial market share update in Fondaparinux is at per our expectations, and we expect to ramp up our manufacturing volume and increase the market share gradually for the next coming months. As we had mentioned in our earlier calls, we expect North America business to do even better in the second half of the year on the back of new customer orders in Shreveport, scale-up in our Bristol launches and other new launches and market share improvements. This quarter, we have launched 5 new products. During the quarter we filed 4 ANDAs, and cumulatively, we now have 76 ANDAs pending approval with the USFDA, out of which 40 are Para IVs and 11 first-to-files. Moving on to India. Revenues for the quarter are at $76 million, which represents a year-on-year growth of 9%. The current quarter's growth was at per our expectations of a gradual improvement. For the month of September, we have seen some encouraging secondary sales trends. Dr. Reddy's September month IMS growth is around 14%, which is in line with the market growth, and we have also gained the rank for the month. On the operations front, we are taking the necessary steps internally to address some of the weaknesses, and we hope to do better in the forthcoming quarters. Most of our top lines did well, growing much above average domestic business growth rates. Our Biosimilars portfolio continues to do well, and it grew by 22% over the previous year. During the quarter, we launched 3 new products. Our Russia business continues to do exceedingly well, with revenues of $63 million for the quarter and year-on-year growth of 30%. Our secondary sales growth of 20% for the 12 months ending August 2011 is much higher than the industry growth of 10%. Our rank in Russia currently stands at #12 compared to #13 last quarter. This growth continues to be largely driven by volume growth across our portfolio, especially in the OTC segment. This has been made possible due to brand promotional investments in the OTC space, which we have impacted our margin slightly, but this is a strategic move from a long-term growth perspective. During the quarter, we have launched one new product in Russia. Talking about Global Generics. Revenues are at EUR 33 million. This is a decline of 17% over the previous year. Revenues from Germany for the quarter are at EUR 18 million, a decline of 33% largely due to the continuing tender-based product pricing pressures. As you are aware, the supplies to the U.K. tender, which have commenced in June this year, have taken time to scale up, and the full effects will be visible in the next quarters. Revenues from the rest of Europe grew by 17% on the back of new launches in the U.K. and growth in the out-licensing business. Moving now on to the PSAI business. Revenues for the quarter are $113 million, an impressive year-on-year growth of 30%. Active Ingredients business grew very well on the back of new launches in Europe, while revenues from the Pharmaceutical Services grew on the back of an improved customer order book status. We are pleased to see a good recovery in the Services segment. While pipeline lock-ins for our Active Ingredients segment is encouraging, has a built-for certainty of a steady performance for the next 12 months. During this quarter, we have filed 11 DMFs globally, including 3 in North America, 2 in Europe and the rest in other markets. With this, the cumulative filings stand at 506 globally. I'll now hand it over to Prasad for his comments.

Thank you, Satish. Firstly, let me take the opportunity to wish you all a very happy good morning. I'm quite pleased with this quarter's performance, and I'm also happy to announce, as we are speaking now, Dr. Reddy's have launched olanzapine in U.S. with a 180-day exclusivity. This is one of our most anticipated and high-value launch projects for this quarter. As we have mentioned in our earlier calls, this year is critical for the scaling up of our portfolio and to build a base for achieving our fiscal FY -- fiscal 2013 aspirations. In quarter 2, we delivered a sequential growth of 15% and demonstrated the capabilities to scale up across our focus markets. The second half of the fiscal is expected to be promising, led by a higher mix of the U.S. Generics business on account of new launches, expected market share improvements and continuing growth in API and Russia. Over the last few years, as we have been able to demonstrate higher success from our limited competition or complex generic opportunities, there has been a constant shift in our approach towards the generic R&D. The emphasis now is more towards quality and complexity of our filings rather than oral coverage of the patent expiries. Our objective is to increase the share of complex generics in our portfolio, and consequently, we are calibrating our R&D spends in line with this. On the regulatory front, we are pleased to inform you that in September, 2 of our manufacturing facilities, our Bollaram plant and Shreveport [ph] plant had successful FDA inspections with no 483 observations. With reference to our Mexico facilities, the response to the warning letter sent by us is currently under review. We are providing periodic updates to the FDA and -- on the activities committed in our response letter. And those activities are pretty much on track and progressing as per our expectations. Upon satisfactory review of our response, the FDA is expected to reinspect the plant in the near future. [Indiscernible] the strategic market for us in R&D was to become a global leader in the generic industry. The effort on our collaboration with Fuji Film for this market is picking up pace, and both the management teams are currently discussing detailed business and operational plans. And we expect to sign investment agreement by the end of this fiscal year. With this, I would now like to open the call for questions and answers that you may have.

[Operator Instructions] The first question is from the line of the Nimish Mehta from MP Advisors.

Can you just share what would be the sales and profitability of the acquired GSK facility at Bristol for the quarter?

We're not giving that level of detail, but I can tell you that the second half, and this quarter especially, would be the scale-up in that plant on account of the antibiotics.

I see. Is it fair to assume that it is -- I mean, for this quarter, it is almost the same as it used to be for the last quarter, that is Q1 FY '12?

Marginally higher than the previous quarter, yes.

Okay. The second question is related to the robust increase in API sales to Europe especially. If you can throw some more light, you mentioned about out-licensing of $14 million, stuff like that. So if you can just be more elaborate on it.

The growth is primarily driven by new molecule launches and pick-up of business from various customers. So it coincides with a large number of patent expiries.

I see. Okay. And so we, basically, will be able to expect this going forward as well as for all the quarter?

Next year is also a big year in terms of patent expiries, so we should see growth.

Okay. Any particular product that you'll -- I mean, you'd launch recently, which is where you are driving a lot of growth rates, if you can share that.

I think you mean [indiscernible] growth?

Sorry?

It's across a number of molecules. We're not sharing that level of detail, I guess.

Okay. Finally, I couldn't hear clearly. You mentioned the gross margin of bulk as well as formulation. If you can just repeat that, I missed that.

Yes. So the API is at 28%. The PSAI segment is 28%, and the Global Generics is at 63%.

Okay. And API last year was 22%?

22%, that's right.

And formulation last year was?

It was about 63.5%, 64%. It was at the same range as [indiscernible].

The next question is from Anubhav Aggarwal from Credit Suisse. Anubhav Aggarwal - Crédit Suisse AG, Research Division: Just one question on gross margin on the Global Generics business. If I just see that sequentially, there's almost 100 basis point decline in the gross margins despite India, Russia and the U.S. market, all the high-margin regions doing well. What's the rationale for this?

So I think the gross margin decline that you're seeing is probably on account of -- there's no specific issue. It's more linked to inflation and input cost, right, and maybe product mix. We -- there is no specific issue, because it's not contracted by 100. It's probably about 50 to 60 basis. There's no specific issue to it.

Do you have [indiscernible].

That's right.

[indiscernible]

Yes. Yes. Anubhav Aggarwal - Crédit Suisse AG, Research Division: And the other question was on this policy change around DEPB, what is the native [ph] back to Dr. Reddy's on this?

So the original DEPB rates were about 6% for us as a company as an average. We probably will now get about somewhere between 2.5% to 3%, in that range. The total amount of DEPB that we had last year was a little bit over INR 100 crones. So depending on how this could be calibrated, it could be -- impact will be about INR 50 crones to INR 60 crones going forward. Anubhav Aggarwal - Crédit Suisse AG, Research Division: Okay. And just given the last question, Mr. Prasad mentioned about the Mexico facility. What is the next milestone? So in terms of timeline, when do you go back to FDA? Is that a very near-term event, less than 3 months?

Going back to FDA is less than 3 months. I think the [indiscernible]. Anubhav Aggarwal - Crédit Suisse AG, Research Division: Okay. And sorry, if I just may sneak in one question. Can you just predict growth of PSAI into API and the CPS business?

Go ahead, Kedar.

Anubhav, we're not sharing the link of PSAI into API and CPS.

The next question is from the line of Prakash Agarwal from RBS.

Just one question on the PSAI. If I look at -- I mean, the growth has been phenomenally, well, much better than expectations. Now are there any one-off elements? And why do we continue to see a 20% less kind of growth considering the fact that in the last one year, we had seen some single-digit growth. So could you give some color there?

Yes. I -- because it's more to do with just the lock-ins that Prasad mentioned, the lock-ins and key product launches. There are a lot lined up for this year and the next year. Also, I think the base was a little lower in the previous year on which we're getting a slightly higher growth in this year. So it's a combination of lock-ins as well as the base effect off the previous year maybe grew by single digits. So there's no real one-off in the results. It's likely to -- we are hoping that this growth rate continues on the back of these 2 items.

Okay. Any outlook you are giving in terms of growth for this business?

No, we haven't. We had earlier mentioned that a good outlook to take would be somewhere around 15% for the entire PSAI segment.

Okay, perfect. And in terms of the ziprasidone which is, I mean, where you have the shared exclusivity, I'm not clear in terms of launch dates, whether it's going to be March, or it's going to be September because of the pediatrics. Can you give some color on that, please?

We're not commenting on that. If it does happen in the current year, it will be towards the end, right at the end of March.

The next question is from the line of Ranjit Kapadia from Centrum Broking.

My question relates to the limited supply [ph] in Glaxo, if you can give some recent updates and the update on the R&D pipeline.

So the sinadi -- we'll cover the surplus in adi [ph] first. The traction on that product is good. We've seen growth on that product versus the previous year, and that's per our expectation. On GSK, I think the curve of growth is increasing slightly now. This quarter, we've -- I think we've almost done maybe a little higher than what we were doing originally in terms of sequential growth. I think this year, our net delta -- this quarter, our net delta would be almost $2 million on GSK. So the traction is improving. There are still a number of documents [ph] which have been filed. And I think we are waiting for GSK's approval in some of the key markets.

The next question is from the line of Bino from IIFL.

Following up on the question on DEPB, where was that getting accounted? Was it in the usual revenue items? Or was it in other operating income?

It was in material costs. It's just accounted in the reduction in material costs.

Okay. And this INR 50 crore to INR 60 crore similar impact. Has it already come in this quarter? Or you think it will be more...

No, it will come -- that INR 50 crore to INR 60 crore is for the full year, Bino, and it will start coming from this quarter. So it would be taking an average of about INR 10 crores or INR 12 crores a month -- a quarter, sorry. That's the impact on [indiscernible].

Right. Right. Regarding PSAI, is there any component of olanzapine involved in that growth?

No. No component of olanzapine.

Right. So the arrangement with Teva will be completely captured in your U.S. revenues going forward?

That's right.

The next question is from Manoj Garg from Edelweiss Securities.

Just want to understand about the Fondaparinux like in terms of market share gain and all. How the oral -- though you have mentioned in your opening comments that the markets are gaining as per your expectations, but there are a couple of reports which indicate that ForEx has been able to garner a much higher market share than what Reddy Company. Any comments on that?

Yes. We have started a little slow, but we are set to ramp up over the next few months. No ramp-up has been recovered, the scale-up of manufacturing, configuration of the packaging which we -- initially, we had facts which were not completely confident with the demand. So over the next few months, we should catch up.

Okay. And how is the pricing synergy so far? Like the [indiscernible].

Satisfactory.

Satisfactory. Okay. And on one of the con calls, the Alchemia CEO have indicated that there will be some reimbursement of R&D cost before they start booking the profit on the Fondaparinux, and they indicated some double-digit numbers. So are we going to receive it in the coming quarter? Or are we going to receive it during the quarter?

It's part of our business we're in that I don't want to comment at that level of granularity.

Right. Okay. Fair enough. Third, like, as Umang had indicated, that there's an incremental delta from $2 million from the GSK deal in the rest of the world market. But still the rest of the world market business, it grew by almost around 8% to 10%?

The impact in there is largely on account of the Venezuela devaluation. So the Venezuelan currency devalued by almost 70%, and Venezuela is one of our largest RoW markets. It has revenues of close to $25 million, post devaluation. So as a result of that, you have seen the growth fall because the rest of the markets and the rest of the world are not that significant, and that's why you're seeing a negative. But if you look at local currency terms or volume terms, each of these markets look very good.

The next question is from Hitesh from BUG Securities [ph].

Two queries, both on the domestic business side. One is currently I read that q-on-q performance has been much better domestically, but when can we see 15%, that sort of growth happening domestically? And secondly, the performance of Nimesulide, how has that been after the high court's verdict?

So I think the complexity [indiscernible] to a decline which was happening on some of the bigger brands. All that has been pretty much taken care of. That's why, back in September month on the market for growth rates and our growth rates, specific in line with the market growth rates [indiscernible]. Now in terms of continuity of that kind of growth, I think only we should [indiscernible] have to take full effect of that, and that's something we hope to see in the next 2 quarters. So as far as Nimesulide is concerned, I think because of the controversy or should I say the coverage of the controversy, the coverage which came in the media further back, that's had an adverse effect on --

Third [ph] quarter on.

-- a couple of quarters, but hopefully things should settle down very soon.

The next question is from Girish Bakhru from HSBC.

Yes. First question is on the U.S. business, especially on the Allegra going for OTC. Have you seen pressure post deauthorization [ph] of the facility?

No, we haven't seen anything.

Okay. And just broadly, if you could share the overall strategy on the OTC business side? I mean, there have been many players who have been talking about gaining the market share in the store brand market, like Wal-Mart [ph] and Watsons. So what is the outlook on the overall OTC business in the U.S.?

So the business performed quite well, and we're happy with the market share that we're picking up. On the molecules that we have launched, all of them are doing better than expected. There's no specific strategy, as such, other than focusing on which products into stores. And we are well set up now to do all the logistics in the U.S. to third-party providers. And our system is becoming more sustainable, and the business is becoming a standalone growth business for us.

Any particular color on how much investments are like, say, going in this area particularly?

We're not sharing that level of detail.

The next question is from Asheesh [indiscernible] from Acquirers [ph].

My question relates to the Russian markets particularly. So as I understand correctly, we do not have a factory presence in Russia, correct?

That is right. Yes.

Yes. Just on some reports you are reading about the Russian government trying to deliberately -- trying to prevent the [indiscernible] of imported drugs and promoting domestic manufacturing of drugs in Russia. So does this pose as a threat to the other in terms of growth and outlook in this market? Or how do you see the Russian market? I understand it's doing pretty well, and its contribution is increasing every year, but will [indiscernible]?

[indiscernible] is also serious about doing it now. So I think it's an issue for all the business competing in the market with foreign manufacturers. So I mean, whenever it happens, I mean, we have our own strategies in place to deal with it. So I will put it as a risk only to what already is here.

Okay. Fair enough. And in terms of the deal with JB Chemical, any particular light you can throw on what is the exact rationale? I understand there have been reports since that is was because of operational issues. And was it over margins? Or was it because of manufacturing facility?

We stand by what we already clarified. We can't go beyond that.

[indiscernible]

The next question is from Nimish Mehta from MP Advisors.

Yes. All the other questions also have been answered.

The next question is from Rahul Sharma from KARVY.

There has been good revenue traction in the PSAI segment in North America despite our Mexico facility being hold up. Can you please add -- give more clarity on this? And secondly, the trade receivables q-on-q have gone up from $349 million to $419 million. I probably missed out on that one. Can you just help me through it?

Well, the PSAI business, the product launches in Europe have helped the API business. That's the main one. Not just the U.S., it's the Europe mainly. So some of the big products which got deferred from the first quarter, they got launched, and [indiscernible] to substantially increase the sales. Now after Mexico's concern [indiscernible] fourth quarter, following the warning letters, so we feel that that really could be contributing to the sales. [indiscernible] those impacts continued. But outside of that, I think the whole CPS business excelled [ph] because the [indiscernible] built the business itself, because of some restructuring that we have done plus also, looking at the order book capabilities which have improved significantly compared to before, that could lead to a significant turnaround. So already, if you take the entire business, the API business as well as the custom services business, that's turned around and new. That's why it will give us some growth.

So on receivables, the trend of the numbers that you're seeing, you should also add the impact of ForEx, because all the receivables in foreign currency are translated at the closing rate, whereas most of the sales are happening at the average rate. And that impact, the distance between the average and the closing rate, is almost contributing the $25 million worth of increase under receivables.

But net-net, has there been an increase in receivable number of days? Or...

No. We've probably seen a day or 2 increase in various markets. Some markets have gone down but not more than a day or 2. We have not seen any significant increase behind that, in local currency terms.

But if this rate continues, then probably, you'll see the trend going ahead?

If this ForEx rate continues, you won't see an impact in the next quarter on a downturn for retranslation, because the retranslation will come only when you have this difference between opening rate and closing rate.

Okay. And what about tax rates for the current year and next year?

It will be -- 17% is the base tax rate going forward, because one of our -- the facility, the plants in Baddi, they have finished the statutory 5-years amounted -- the 5-year provision which is given by the government under the section of the HSC. So we won't have any plants now which have those exemptions.

The next question is from the line of Sameer from Morgan Stanley.

Just a clarification on Zyprexa OTC form. Has Dr. Reddy's got an approval for that?

Yes, we do.

And would it be launching in the market now?

Yes.

[indiscernible]

Okay. And it's not part of the OR [ph] deal?

No. That's not part of that.

And if I'm not wrong, I think there are only 3 pairs of what is approved?

Yes, it's shared exclusivity.

Okay. Okay, fine. And the second question I had was on the darbepoetin clinical trials. Can you update us where we stand on it as far as topical application?

The trials are not still [indiscernible], so it's still going on.

Sorry?

The trials are still going on. The data has not been unblinded.

Number of patients. It's a thousand-patient trial roughly, Sameer, and until we unblind the trial, we won't know the results. But we've not heard anything untoward right now.

Okay. And when do you expect to complete the trials?

I think it'll take another 9 months or so.

Okay. Okay. And just one final question on the domestic market. Is there any risk of increasing the price control by the government? Any thoughts on this?

I mean, it's an [indiscernible] issue, we have to wait and see.

Okay. I think the Supreme Court has asked the Ministry to clarify its stand. So I'm just wondering, do you think this can be a near-term event or any feeler or word from the government?

We don't really -- I think the government has to reply to what was asked for, so -- I mean, I don't have a view of it at this point in time.

The next question is from the line of Abhay Shanbhag from Deutsche Bank.

Yes. This is regarding the balance sheet again. There's a sharp increase in debt. Does that largely have to do with the ForEx or with the depreciation? And can you just throw some light on how much is it for the depreciation?

Yes. So it is on account of rupee depreciation. And the amount we will send to you. INR 60.3 a day. I don't have the figure right now, but we have done the calculation, and I can send it to you.

Okay. And another question. You indicated that $25 million increase in receivables is due to ForEx. Would this have benefited your P&L in the current quarter?

In the first quarter, no, because the billings have -- the distance between the average rate and the billing rate was not high. In the second quarter, the average rate is close to INR 46 there and the closing rate is INR 49. So all your receivables get translated at INR 49.

Okay, fine. The other one was on the [indiscernible]. Can you just say what's the size of the market for 20 mg and for the [indiscernible].

So 20 mg is about [indiscernible].

Sorry, 900?

Yes. [indiscernible].

Sorry, what did you use?

$18 million.

$18 million. And [indiscernible] is shared as you indicated by, I don't know, [indiscernible] and one more.

[indiscernible]

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

Two questions here. Firstly on the Glaxo deal, Umang, you mentioned about the traction building up. So it's been a slow start, but how do you see this spanning out in FY '13 for you? Will we see a meaningful inflection in the Glaxo numbers?

I mean it won't be meaningful in that sense. I think it will be tens of millions of dollars.

Tens of million dollar. Okay. That's helpful. And secondly, on the Biosimilar front, we are seeing very good traction in India. So is it largely rituximab or some of the other new launches that you had is also showing good promise?

It's done well. Darbepoetin has been a little slower than anticipation, but [indiscernible].

Yes. And on rituximab, I mean, my understanding is that for the last one year or so, there has been a good pickup on this product. So what's the dynamics there? Have you done anything differently?

Market expansion is happening, so that's largely contributing to the growth.

And the pricing is more or less similar levels from what it was earlier?

That's right.

Okay. And finally, if I may just ask one more question on the R&D spend. Incrementally, the increase that we are seeing on R&D, will it be fair to assume that most of these investments are happening towards product development for the U.S. market?

A large portion is, but we're also developing for other geographies. So there are 3 or 4 buckets to R&D that you would have. We have the process R&D for generics and API. Then we have the Biosimilars development program, which includes clinical spends also. Then we have the proprietary products, which is, of course, an outfit of NC [ph] but a large portion of it is differentiated formulations. It involves CRO-based contracts, research worldwide, as well as clinical development. So the single largest bucket is the Global Generics one.

Global Generics. Okay. And Biosimilar would still be less than 1/4 of your overall spend. Will that be a right assessment?

Yes, but we'll see increasing trend in the next few years as we start clinical development.

The next question is from Anubhav Aggarwal from Credit Suisse. Anubhav Aggarwal - Crédit Suisse AG, Research Division: Just taking the last question further. You earlier guided to R&D spend of around 7% to 7.5%, in that range, but we're doing something like 6% to 6.5% right now. Do we expect it to pick up? Or it's -- for this year, it's going to be higher?

It still will be higher. It still will be higher than H1. Anubhav Aggarwal - Crédit Suisse AG, Research Division: Okay. And a simple question. On constant currency in this year, what will be your sales growth for this quarter?

So we are showing in constant currency, it's about 30%. Anubhav Aggarwal - Crédit Suisse AG, Research Division: It's 30% sales growth in this year? Okay. And on Fondaparinux, when is the plan for us to launch in the hospital segment as well?

Yes. So we are looking at that as well, and it's probably scale up within -- as Prasad mentioned, within a quarter or 2 quarters, we'll begin to scale up. Anubhav Aggarwal - Crédit Suisse AG, Research Division: Okay. And just a last question on SG&A. What percentage of increase can we attribute to just a salary increase of like, for example, what you're seeing, a 27%, 28% year-on-year increase, how much can we attribute to inflation plus salary increase over there?

We're not giving that level of detail. I can roughly guide you to say that roughly about 50% of the SG&A is manpower, but we're not going to give any further detail and quantify the inflation.

We have Mr. Prakash Agarwal from RBS.

Just another on the market share of key products, especially Tacrol, Lansoprazole and Omeprazole. Can you please share the market share as on the last reported?

Yes. Prakash, on Tacrol we have roughly about 32%. And Lansoprazole, it's about 20%, and Omeprazole, it's about 20%.

And Fexofenadine is a basket in D24?

The OTC portfolio, there is no real line to track market share, but we are doing a fair share of the market.

And Fondaparinux, please?

Fonda is about 10%. About 10% is what we have on Fonda.

Okay. And any targets by year end? What is -- because what I understand is we are limited currently in terms of our launches in retail. So any target that we are targeting to reach by the year end?

I guess the target will be as much as we can supply from here. So we haven't set a numerical target except that we will -- we hope to see our market share climbing up quarter-on-quarter.

Perfect. And our guidance remains largely of $2.7 million of revenues, '13.

That's right.

Okay. And on comments on India business, I'm not sure whether I missed this. We have seen a sequential improvement in the growth rate. Earlier it was 6%. Now it's around 9%. So the 2 key reasons were the brands, as well as the second one was the sales reorganization. So you're seeing these are partly going off, and you will see gradual improvement? Or how is it? Any color there?

We've seeing the gradual improvement. I think there are actions underway to address all of these and including sales force realignment as well as brand promotion and brand maturity. So we're working on but those aspects simultaneously.

So when do you -- I mean do you see another quarter or a couple of quarters to resolve and come back to 14%, 15% kind of growth? Or it could take longer?

Maybe about 2 quarters is a good time for us to probably look at that.

Okay. And tax rates, you had earlier guided I think 18% to 20%, especially for fiscal '12 with olanzapine upside. So are we saying now it's 17%? Or...

So Prakash, we guided for 17% on the base, and the base excludes olanzapine. With olanzapine, you're right. We would be in the 18% to 20% range.

Perfect. And lastly, I missed this one...

Well, actually, Prakash, we want to limit the questions to 2 per participant. So we would -- want the other participants also to get a time. We can take your questions offline, Prakash.

The next question is from the line of Chirag from Espirito Santo.

On Terbinafine, has patient enrollment been completed? Or is it still undergoing patient enrollment.

We are nearing the completion of patient enrollment on Terbinafine.

Okay. And secondly, could you update us on your Biosimilars plan? Because 2 quarters down the line, I mean 4 quarters behind, before you had mentioned that you might go it alone in the U.S. And a couple of quarters back, you were talking about potential partnerships. So what is the kind of strategy that we could see going forward?

So the Biosimilars, the first set of products we always have a partner. I don't know where you got the [indiscernible]. The first set of products we will use a partnership going into the relevant markets. And -- but regardless of the partner being tied up, we are moving forward with the clinical development strategy both for Europe and U.S. for the products. And currently, we are in discussion with companies for partnerships.

The next question is from the line of Christian Dalnia from Banks [ph].

So first would be on the domestic industry. Have you seen any price cuts taken by other players on the existing portfolio on the domestic front?

No. It doesn't matter.

In terms of the price competition, even, I take this simply on the...

Price is not a significant driver of competition anyway.

But have you taken it in terms of any...

[indiscernible] across industry [indiscernible].

And third is on the forward covers and the ForEx debt. Opening remarks said something that you have raised some long-term debt. So can you repeat it again?

Yes. So we did long-term debt essentially to decongest our short-term debt. So what we were doing is we have taken a lot of the short-term debt, and we're trying to replace that with long-term debt. So there's no incremental new debt coming in. It's just so that we can ease our limits on the short-term debt a bit more.

Okay. And on your forward covers?

The forward covers including the -- for the next 18 months have netted about $775 million.

The next question is from the line of Surajit Pal from Elara Capital. Surajit Pal - Elara Securities (India) Private Limited, Research Division: I have just one question. Going by the company's pretty fantastic performance on proving this product, I just wonder why there is no news from company's side. Is there any kind of activities on moving up filing? Because it's a big product and very few competition is there.

Surajit, which molecule you are referring to? Surajit Pal - Elara Securities (India) Private Limited, Research Division: Inoxipin.

We're not disclosing that, Surajit. Sorry, we cannot not disclose at this point in time. Surajit Pal - Elara Securities (India) Private Limited, Research Division: But will it be right to think that there's something is -- activities around from the company's headwind by your efficiency in Fondaparinux?

They are not related. Fondaparinux is a specific molecule no one else has benefit to take. That's not a conclusion you could draw.

The next question is from Manoj Garg from Edelweiss Securities.

I just want to understand, like the last few quarters you had indicated that whatever the ramp-ups we had in the Tier 3 and Tier 4 market, initially, we had come across with a high attrition in the sales force. Just want to understand how that recent issue has -- is there better security now in the sales force?

So it's one of the factors that we can keep discussing [indiscernible], but I don't think that's the issue right now. So probably what we're seeing is good [indiscernible]. Attrition is also one of those things, right? [indiscernible]

Yes. We mentioned that there are separate interventions. And attrition is actually a result of something not working well within the company, and that's what we're trying to address.

Okay. The second thing, like if you look at your top 10 brands portfolio, where the dependency of the company is relatively higher as compared to many of the large players. That's indicative probably of like what are the new products that we introduce in the domestic market. And they have not been very successful and have not been able to ramp up the market share. So are we really addressing this new products growth opportunity? Or how to really divide the market share by having more focus on new introduction and making them more successful?

Yes, we are looking at them.

So like what kind of run rate we are looking in terms of launching new products?

I think run rate is not relevant. We are looking at therapy gaps, looking at product positioning. They're not driven by numbers.

The next question is from the line of Bino from IIFL.

Just a follow-up question on Russia. Now the constant currency 30% growth that you said, it's in U.S. dollar or rubles?

Dollar terms, Bino.

Constant dollars.

It's constant dollars.

And the reason for that is you bill the distributors in U.S. dollar?

No, we bill in ruble. If you want the ruble growth, it's 27%.

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

Just on the U.S. market and the product opportunities that you have disclosed for the next 3 or 4 years. First on Lansoprazole OTC, if you can share how big that opportunity is. And you also listed [indiscernible]. What makes you think that it would be a limited competition opportunity?

Yes. So Saion, we think the biostudies are quite difficult and complex, so that's the reason. Though there are many DM [ph] filers, we think from the formulation perspective, there will not be too many players. And the size of the molecule is also quite -- it's about 3 billion. So that's the reason why we think that opportunity will be good.

On Lansoprazole, I think the Rx market is roughly, you could say, $200 million to $250 million. So we expect the transition to OTC to be still probably marginally lower.

The last question is from the line of Sameer from Morgan Stanley.

Just a quick clarification with Zyprexa OTC. If I'm not wrong, according to IMS, the size of the market is about $360 million and so has been expressed in biopharmaceuticals press release. So you mentioned $80 million. Is it about you being quite exclusive on this particular strain? Or how do we reconcile the two numbers?

So Sameer, the data that suggests $87 million is the brand market size. So maybe we can connect post the call just to understand what your data source is, but we are looking at $87 million as the brand size on OD [ph].

Thank you. I would now like to hand the conference over to Mr. Kedar Upadhye for closing comments.

Thank you all for joining Dr. Reddy's senior management for this earnings conference call. In case of any pending clarifications, please feel free to get in touch with the Investor Relations team. Thank you, and good-bye.

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