Dr. Reddy's Laboratories Limited (RDY) Q3 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen, good day, and welcome to the Q3 FY '12 Earnings Conference Call of Dr. Reddy's Laboratories Ltd. [Operator Instructions] Please note that this conference is being recorded. I would now 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 Q3 FY '12 Earnings Conference Call for the quarter ended December 31, 2011. Earlier during the day, we have released our results and the same are also posted on our website. We are conducting a live webcast of this call and a transcript shall be available on our website soon. The discussion and analysis on 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 clarifications are required, please feel free to get in touch with Raghavender, Milan or myself. I would now like to turn the call over to Mr. Prasad for his opening remarks.

Good evening and good morning to all participants. I welcome you to our Q3 FY '12 earnings call. I am happy to announce that this quarter's results mark our highest-ever quarterly sales and profit performance. On the back of the highly anticipated launch of olanzapine 20 mg in the U.S. market this year, our revenues have grown by 46%, and net profit has grown by over -- by 88% over the same period of the previous year. As you're aware, the 180-day exclusivity for olanzapine runs into the fourth quarter of this fiscal as well, and we will benefit from this contribution in Q4, but at not at the same level as Q3. It has been our target to leverage the limited competition, high-margin opportunities consistently in the U.S. markets. These opportunities will be both in the form of 180-day exclusivity, as well as difficult to develop and manufacture products, resulting in longer-term, sustainable revenue streams. Olanzapine launch is a key milestone for us in this journey. Our partnership with Teva for the distribution of olanzapine 20 mg was also beneficial as the result of offering the full range of products to the marketplace. Over the next 6 months, we also have a number of other important launches lined up for the U.S. market, which will fuel our growth for the next fiscal year. The organization, including manufacturing, supply chain and commercial teams, are adequately geared to tackle the increased business scale as well as the associated challenges. These launches are the result of the sustained R&D efforts and investments made over the last several years. This would also help us in building a growing and sustainable revenue base beyond FY '13. Now I hand over to Umang to discuss the quarter's financial performance. Umang?

Thank you, Prasad. Good morning and good evening to everyone. Let me begin with the key financial highlights. All the numbers, including those of the previous year in my section, are covered at the convenience translation rate of INR 53 per USD $1. Discussion in Satish's section will be based on performance in respective market's local currency. Our consolidated revenues at $522 million for the quarter have registered a year-on-year growth of 46%. This includes $99 million of revenues related to our revenue share from our partner for olanzapine 20 milligram. Growth for the 9 months of this fiscal event, 29%. Excluding olanzapine, the growth in the quarter over the previous year is close to 23%. Year-on-year, we have also benefited from the rupee depreciation against most of the foreign currencies. However, this has to be seen in conjunction with the cash flow hedge loss of $21 million booked in sales, primarily in relation to our hedges on account of olanzapine. Revenues from Global Generics are at $402 million and grew by 57% for the quarter and 32% for the 9 months, driven largely by the U.S. market. Revenues from the Pharmaceutical Services and Active Ingredients, which we shall refer to as PSAI on this call, at $105 million recorded a growth of 12% for the quarter and 16% for the 9 months. Consolidated gross profit margin for the quarter is at 60%. Gross profit margins for Global Generics and PSAI are at 66% and 35%, respectively. SG&A expenses including amortization for this quarter are at $145 million, an increase of 20% over the previous year. This increase is largely attributable to manpower cost increase, higher distribution costs and the effect of rupee depreciation. The sequential increase that we see in these expenses is largely on account of rupee depreciation. EBITDA at $174 million is 33% of sales and grew by 127% over previous year. EBITDA for 9 months at $351 million is at 27% of sales and grew by 59% over the previous year. Vis-à-vis Q2, the profit for the quarter has no impact on account of ForEx benefit due to the hedges which were explained earlier. The effective tax rate of 34% for the quarter is on account of release of olanzapine inventories in U.S., which is at a higher tax jurisdiction rate. As indicated earlier, the effective tax rate for the full year will remain at 23%, which is almost the same rate for 9 months and the year. Adjusting for the increase of bonus debentures, profit after tax for the quarter is at $98 million, 19% of sales, with a year-on-year growth of 91%. Similarly, adjusted profit after tax for 9 months is at $209 million and has shown a growth of 44% over the previous year. Key balance sheet highlights are as follows: Increase in operating working capital by $124 million from the previous quarter is largely due to receivables of olanzapine, which are expected to be realized in the next quarter; capital expenditure for 9 months is at $94 million; foreign currency cash flow hedges for the next 18 months in the form of derivatives and loans are approximately at $638 million, largely hedged in the range of INR 47 to INR 48 a $1. In addition, we have balance sheet hedges of $425 million; our mark-to-market losses in our hedge reserve account in the balance sheet on account of cash flow hedges are approximately $85 million at 31st December 2011; the corresponding amount as of the current -- of the -- as of the current exchange rate of end Jan 2012 is much lower at $29 million; net debt at $413 million represents a net debt-to-equity ratio of 0.42. As I end, I'm happy to report that we were accorded the Golden Shield award for Excellence in Financial Reporting in the Manufacturing sector. This is the fifth consecutive award from the ICAI that we have received across the various categories of awards. With this, I now request Satish to take us through the key business highlights.

Thank you, Umang. I now call the business highlights for each of our key markets, starting with the U.S. Generics. Revenues at $235 million recorded strong year-on-year growth of 125%. A large part of this growth was driven by olanzapine. The tie up with Teva was beneficial to us as it helped us generate additional cash flows. This business growth was quite robust, driven by products such as Fondaparinux, Lansoprazole and Omeprazole Magnesium OTC. I'm pleased to see a steady ramp-up in our antibiotics portfolio and also the shift of sale in line with our plans. In the next 6 months, we are gearing up with some important launches, and we remain optimistic about the long-term growth opportunity in the market. During the quarter, we filed 3 ANDAs, and now we have 75 -- 79 ANDAs pending approval with the USFDA, out which 40 are Para IVs and 10 are first to files. Moving on to India. Revenues for the quarter at INR 333 crores or $66 million representing year-on-year growth of 11%. This performance is in line with our expectations of a gradual increase in the growth rates, and we're hopeful of returning to industry growth in the coming quarters. Our Biosimilars portfolio continues to do well, and it grew by 25% over previous year. During the quarter, we also launched 6 new products in India. On Russia, with revenues of $54 million, the growth in ruble terms was flat at 1%. This was largely on account of delayed onset of winter, leading to lower uptake and constrained liquidity. We continue to making a conservative approach with our credit management policies in the market and, hence, the lower sales number. Our growth as per Pharma Export Data, which is a market research agency in Russia, for the quarter of 23% continues to be higher than the market, and our market strength as of -- to December remains at #12. The performance in the third quarter does not worry us too much as we are seeing very robust customer orders in the fourth quarter. For example in the month of January 2012, our sales grew by more than 50% year-on-year, which is in line with our expectations, and we also expect February and March to be good months for us. Talking about Europe Generics. Revenues at EUR 35 million represents a marginal increase of 2% over the previous year. Revenue from Germany at EUR 23 million remained flat compared to the previous year. Revenues from our Rest of Europe business grew at 5%. Now moving on to the PSAI business. Revenues for the quarter are at $111 million. The revenues were flat year-on-year due to staggered customer orders over the coming quarter. In third quarter, we filed 7 DMFs including 2 each in North America and Europe. With this, the cumulative filing stands at 513 globally. With this, I now would like to open the call for questions and answers -- for Q&A.

[Operator Instructions] The first question is from Ashwin Agarwal from Akash Ganga Investments.

The U.S. geography, as has been told in the opening commentary, has done very well, and we expect even FY '13 to be very good in terms of market share gains, new product launches and exclusive products. Could you please add a color to what you said in the opening commentary, particularly for the U.S.? Post FY '13, how do you see that business shaping up and growing beyond the $1 billion tag?

I didn't talk about the $1 billion, but I certainly remain bullish about the U.S. market. FY '13 will be another year-on-year -- period of good growth based on the pipeline that's unfolding. FY '14, we should continue the growth momentum but at reduced rates, since the base will be large enough, as well as the number of products going off patent is likely to decline in FY '14. Medium to longer term in the U.S. market, I think we will have to diversify our portfolio and look at other growth forms, look at specialty generics, biosimilars, those kind of opportunities to drive growth. But the U.S. will likely remain the largest market for the -- for Dr. Reddy's for a long time to come.

Could we expect products such as Fonda, which are not known, going forward in next 1, 2, 3 years in the U.S., which could drive reasonably good and sustainable growth?

The effort is to improve our product portfolio from a complexity, technology point of view. So we hope to add more such products to our pipeline.

The next question is from Nimish Mehta from MP Advisors.

My first question is -- I just missed in the initial commentary, you mentioned some partnership revenue from Teva on Zyprexa. If you can repeat that, that'll be great.

Well, Teva has all the others strength. It had the 20 mg and the ODT. So that is an authorized generic in the market. So in order to effectively compete with authorized generics, it's important to have a full range of product, full range of the dose strengths. So we collaborated with Teva so that we can effectively compete against the authorized generics, and this, we believe, has led to better-than-expected revenues.

Right. But did not you mention any number as profit from partnership? I thought you did say it.

I think Umang mentioned the revenue, not the profit.

$99 million in revenues is what we mentioned.

Okay. From Zyprexa partnership, right?

That's right.

Okay. The second questions is, if you can just explain me better as to what is the net impact on, let's say, EBITDA because of ForEx. Because you have booked at INR 53, but you would also be having some costs in dollars. So how do we look at -- trying to understand how do we look at the margins due to foreign exchange?

So sequentially, there should be no effect on account of foreign exchange on EBITDA. That's because the ForEx benefit on account of the depreciation of the rupee will be offset by the hedges that we have taken for olanzapine in the previous year. So the 2 are setting themselves off. There is no effect of ForEx sequentially quarter-on-quarter. Well to the previous year, yes, there is an effect of ForEx, but that's been seen even in quarter 2 to and in quarter 1.

I see. But you translated the revenue at INR 53, so I mean, vis-à-vis, whatever we had in Q2. So despite that, there is no impact of foreign exchange in...

So we will translate that INR 53. But if you've taken hedges, which are a lot, are at rates which are significantly lower than that, that loss will get booked into our sale.

Okay. So you also had booked some -- yes, I can see that, ForEx losses into the book, so okay. So is it fair to say that -- I mean, the net foreign exchange that you have realized is at about INR 46, INR 47.

I would say if you were to look at our P&L and see what is that average booking rate, roughly it will be closer to INR 48, INR 48. Because the average rate for the previous -- let's remember that is also around INR 50, INR 51, while the closing rate is INR 53.

The next question is from Manoj Garg from Edelweiss.

Just would like to understand that what was the average price erosion in olanzapine because of this authorized generic being there in the market, if you could give some color on that.

We are not providing details exactly on product level. But it has behaved pretty much like any other product which has an authorized generic and a first to file. So it's in the range of about 40% to 50%.

40% to 50%, fair enough. I think -- and the second question is with regard to olanzapine. Again, when we book a revenue for olanzapine, would it be on the same average rate of INR 47, INR 48, or olanzapine, we have hedged at much, much, much lower rate?

So our -- the olanzapine rate is much lower because the hedges for that were taken in the previous year, and the earliest booking for olanzapine is close to INR 45.

The next question is from Sonal Gupta from UBS Securities.

Just a couple of questions. One, I just want to understand there is an increase in -- there is a net ForEx gain also in the other income in -- within the net finance income. So can you just explain where all have you seen the impact of ForEx gains and losses?

That ForEx gain that you're seeing in the ForEx line of the P&L is on account of the difference between the invoice rate and the closing rate. If the average invoicing rate, for example, was at INR 50 for the quarter, and the closing rate was at INR 53, your receivables get restated as INR 53. So that gives you a gain. But against that, we always take forward options -- forwards and options, and I think that's the net effect of that gain.

And any hedges which were there in the balance sheet for this period have been recognized in the -- there in the top line?

So there are 2 types of hedges. One is the receivable hedge, which we call a balance sheet hedge. That gets recognized on this line. The other set of hedges are the cash flow hedges, which go to the sales line.

Okay. The cash flow hedges, which would also -- okay. They go into the sales line. And the other thing, just on the financial is that there is an increase in both debt as well as cash in this quarter. Could you just explain the main reason for that?

So we have a couple of debts, which are coming up for renewal now, and those will be repaid in this quarter. As a result of which, when we borrowed the $220 million, we were balancing the short-term, long-term maturity profile of the debt. So the cash from the $220 million is lying in the bank. It will repay the short-term debt that we were running, which was slightly higher than what we were comfortable with. So in the next quarter, that will even out. Overall, net debt has gone down versus the last quarter.

Right. And just one final question from my side. In terms of the base business for the U.S., that is x olanzapine, have you seen any change in revenue quarter-on-quarter given the decentralization rates, et cetera, that have been recognized? So in dollar terms, is there a change there on a quarter-on-quarter basis?

The ForEx impact will not affect the dollars numbers that we've booked. But we've seen more or less a quarter being at the same level as the previous quarter, excluding olanzapine, and that's on account of the fact that there was off-pricing action on Tacrolimus, which -- where we saw a new competitor in the market. So the result of that and that -- the effect of that has been considered. And as a result of that, that's at the same level as quarter 2.

Okay. No, sorry. Just to -- so you're saying that -- then it will be roughly at the $135 million-odd level that we saw in the last...

That's right, exactly.

The next question is from Bino Pathiparampil from IIFL.

Just to follow up on the prior question. Umang, if I need to calculate the U.S. -- your U.S. sales in the -- in U.S. dollars, I probably have to take the rupee number you have given and divide it by INR 47 or INR 48, whatever that booking rate is, is that right?

No. Actually, we can give you those numbers. The U.S. numbers already we had mentioned in the -- in Satish's section was at $235 million. That included $99 million of olanzapine.

Okay. And this is at actual rates.

This is at actual dollar billing, actual dollar billing.

All right, right. A follow-up question. Like you have hedges for U.S. dollar, do you have hedges for your other markets, like Germany, Russia, et cetera, the impact of which is showing up in your -- in the breakup that you gave in rupee terms?

No. Because the euro, we are not extensive on the euro as a currency. We don't have too much of a net exposure on the euro, so we don't take too much of euro hedges. On the ruble, we only do balance sheet hedging because it's difficult to forecast the rate going forward.

Great, great, great. Fine. So that's fine. Finally, Satish, I was just wondering about this product PLAVIX in the U.S. If you could give some color on what you think about, then your launch could be -- what could be the competitive dynamics around that.

So, Bino, we expect -- we have mentioned in the call that we expect to launch this product next year, and this would be a very generic market.

Right. How many people do you expect to be launching on day one?

There are a fair number of approvals, Bino, tentative, and a lot of filers. So it would behave like a normal generic market, but we are the first to file on one of the strengths.

The next question is from Nitin Agarwal from IDFC Securities.

Umang, my question was, last year, on the SG&A expenses. I mean, where do you see the SG&A -- I mean we are at about on a -- if you exclude Zyprexa, we're around 27.5%, 28% of sales, and this has sort of inched up over the last couple of years. Where do we see this thing stabilizing out for us?

So I'd say that if you look at the YTD Q2 rate and the percentage there, YTD Q2, which is the previous quarter, that's roughly where we are on SG&A, because you're seeing an effect of ForEx, which would go again in the next quarter.

Right. But -- so 27%, 26.5% -- I mean, 27% all or thereabout, is it -- that that's going to be an optimal level for us. Do see any scope for any reductions optimization on these levels as you go forward?

I think it should, because the U.S. revenue is not linear with respect to SG&A. So hopefully, it would adjust downward. But right now, we are at 26% to 27%.

Right. Because this is on the higher side, when you compare the peer groups, just makes us wonder. And you've been sort of talking about that you've done a lot of your onetime investments in Russia, and at some stage, it'll start to come off. That impact hasn't quite been seeing the numbers yet. So I was just wondering if you cannot see some dramatic sort of reduction as we will go forward on this.

It won't be dramatic, but there would be a gradual reduction as we go forward.

Okay. And on the Fondaparinux. How's the market share update been for us?

So the market share is about 18% on the prescription side.

Okay. And so -- and last question, you've talked about these launches coming forward in the year -- in the quarter and year ahead. Can you throw some more light on this? If you shed some more information on this, some of the specific products that you're looking to launch and the time lines for the same.

Nitin, most of these products are all in public domain. We have spoken about ziprasidone. We have spoken about [indiscernible]. We have spoken about possible launch of atorvastatin. So most of these are in public domain.

But in terms of -- I guess Codapane also would be a fairly competitive launch for us, right?

Yes.

Yes.

The next question is from Anubhav Aggarwal from Crédit Suisse. Anubhav Aggarwal - Crédit Suisse AG, Research Division: Just one question, Umang. On your reported gross margins, just for the Global Generics segment, excluding olanzapine, sequentially, there's a decline, right? Is that only because of DEPB benefit going away, or is there more than that?

So let me -- I maybe answer it in a different way. I say that it's because of some amount of DEPB going out, but it's also because the mix of businesses have changed. So if you see Russia, this time has been slightly slower in terms of what Satish also explained earlier on the call. And as a result of that, we have this mix of gross profit is lower than what you would see. But structurally, the gross profit in each of the geographies is at the same level as it was in quarter 2. That's -- so it's a mix of businesses that is giving rise to this. Anubhav Aggarwal - Crédit Suisse AG, Research Division: Got it, okay. And the DEPB benefit that you've been courting around is -- in the previous calls is around INR 50 crores to INR 60 crores annually, so that's the number that we should still...

Yes. That's roughly what you could hold on. Anubhav Aggarwal - Crédit Suisse AG, Research Division: Okay. Just one question on the interest, net interest cost. What you've been recording this quarter is around $3 million as the net interest cost. Can you just tell -- you have cash around $300 million right now and debt gross at around $700 million. What date have you taken the debt, and what date is the cash invested?

So our debt, a lot -- so there are 2 parts to our debt. The first is the long-term debt that we did last quarter. That's $203 million, and we took that LIBOR plus 185 basis points. So that's long-term debt in terms of bonus debenture, which we accrued earlier, that is on a 9.25%, and that's INR 504 crores. That's the 2 long-term debts. All the others are short-term debt which are for working capital, which are generally in the dollar currency. Anubhav Aggarwal - Crédit Suisse AG, Research Division: Okay. And most of the cash invested at around what level, I mean, approximately 5% plus or less?

No, it should be more than 5%. But we're not giving exact details on that, but it's more than 5%. A large section of that is also invested in India. That's why you see more. Anubhav Aggarwal - Crédit Suisse AG, Research Division: Okay, got it. And just last question. R&D has been tracking around just around 6% to 6.5% of sales. At least in the first half, it was the same range. Was this -- what you guided last year was around 7% to 7.5%. So would we see a higher number, expect a higher number next year, or is this the trend now going forward?

I think we maintain the range of 7% to 8% as a range going forward.

The next question is from Abhay Shanbhag from Deutsche Bank.

Yes. Can you shed some light on how the Russian market has behaved? Because you did indicate that the secondary sales are at 23%, and otherwise, the business was a flat 1% growth. So what exactly has happened? Is there so much of destocking which you have done?

It's not just the destocking, Abhay. See, what happened is, as I tried to explain, see, mainly the issue is the delayed season, the winter season, right. That's one thing. If you actually see the weather patterns, I mean, through any of those -- the public data, you can actually make out that it's delayed, right. So I'm also saying it's not a matter of concern, that's what I specifically said about that January number, right, which normally we don't talk about. I was just clearly telling you that the January itself shows 50% increase in sales and related to the conservatism on the purely sales part of it. All I'm trying to say about distribution is that because of the distribution of -- because it's stocked up in anticipation of higher sales, it's a drag, and they also ended up in some kind of a liquidity crunch. So our response in such situation there is that we like to be very conservative, especially when it comes to receivables and things like that. So we deliberately held back some sales, and that's why you see the January number, right. So I think demand is still there.

Yes. So basically, from this quarter, we could see sales ramp up, being quite robust for 1 or 2 more quarters because of delayed things, so it should pick up significantly in the current quarter and drive overall margins.

That's why I'm seeing this growth rates, which you have seen in the earlier part of the year. That's what I'm saying, yes.

Okay. The other one was on Fonda, do we see now -- you've been saying that volume ramp-up should happen. So do we see a significant ramp-up in the current quarter, with the operation constraints largely being addressed?

The production constraints are not fully addressed. But I think we might have enough material to clearly ramp up the market share.

Okay. One last question on olanzapine. You launched it in late October. So the $100 million, is it 3 months of exclusivity? Is it 2 months or is it 4 months? I mean, how do we take that into -- roughly into our numbers?

It's roughly 3 month, Abhay, because of the -- there will also be some amount that the partner would have given to the channel. So it's roughly corresponds to 3 months' worth.

The next question is from Sameer Baisiwala from Morgan Stanley.

I think, Satish, I heard you on the -- on CNBC talking about OTC portfolio, if I'm not wrong. It's now, in U.S., $100 million for 9 months?

Yes, that's correct, Sameer.

Okay. And where do we see this by end of fiscal '13? And second is on Lansoprazole OTC. Is Perrigo's citizen petition file in December has any implication for your filing?

So, Sameer, on the latter of year, we're looking at it. We -- as of now, we think that the citizen's petition is against Perrigo, but we take -- we're still evaluating it. We don't believe that there is anything other than what Perrigo would face for this product that would apply to us. The OTCs, what we're seeing in terms of FY '13 and maybe quarter 4 of FY '13, we could be tracking at the rate of annualized about $200 million a year.

Okay. Wonderful. And the second question is for Fondaparinux. When do we expect the hospital segment launch? And second, when do we expect the production bottlenecks with full year result?

I think it will take us another quarter or so, another 3 months or so to fully resolve all the bottlenecks.

And that's the time when you'll be launching for hospital as well.

Yes.

Okay. And one final question on Biosimilars. Which are the market that you find attractive in emerging markets outside of India? And second, where are we in terms of regulatory filing in those markets for rituximab and filgrastim?

I don't have a complete list of the countries that we are going after already at this point. But South America, frequently in South America the focus area now, in addition to 1 or 2 countries in the Middle East. Collectively, they're not huge. Maybe third, fourth year from now, we will see accumulative of revenue of $100 million from emerging markets.

From -- for Biosimilars?

Yes, yes.

$100 million? And this includes India or...

Yes, includes India.

Okay. What is this -- what will be the number for fiscal '12?

About close to $30 million.

I see. And what's the time line for us to go from $30 million to $100 million? Is that 1 year, 2 year, or what's the time frame we're looking at?

2 to 3 years.

The next question is from Prakash Agarwal from RBS.

A question on Fondaparinux here. I mean, just wanted to get some clarity on the filing status and approval for the European launch.

It's too early to comment. We're just, I think, in the process of filing this.

The exclusivity has not yet run out, Prakash. So -- after which, we will be filing.

But I mean, it would be a '14, FY '14 phenomena, or could be later as well?

I think filing would be FY '13. Launch could be a year or so later.

Okay. And on the gross margins of PSAI, could you share that number?

35%.

35?

Yes.

Okay. And I just missed on the hedges, if you could repeat what is outstanding hedges currently.

So the outstanding hedges are about $638 million for the cash flow and $425 million for the balance sheet hedges.

And the $638 million is spread across how many quarters or I mean...

18 months. 18 months.

Okay. And these are taken in the range of the present rates at INR 49?

INR 47 to INR 48 a $1. That's the average rate.

Okay, perfect. okay. And there was some comment on the DEPB INR 50 crore to INR 60 crore impact. Could you please explain that as well?

So that's the average level of DEPB impact net DEPB deficit that we'll have because of the removal of the scheme, and it's watering down toward the 15. That is the annual -- that is for the annual level. It's probably impacted INR 50 crores to INR 60 crores. So it's not a one quarter impact. It's an annual level. So third quarter, it would be about INR 10 crores to INR 15 crores, also.

Okay. And this has already started, I mean, this impact?

Yes. This has started, and it's not significant to our overall markets.

The next question is from Bhagwan Chaudhary from IndiaNivesh.

Just one question on this olanzapine side. How much market share we have gained there and how we look forward in the next quarter? I just missed that comment. I mean, what can we expect? What kind of figure in the next quarter from this year?

Could you repeat your question? We couldn't understand.

Yes. what is -- olanzapine, how much market share we have achieved there, and how we can look forward in the next quarter [indiscernible]?

Bhagwan, market share, as of the latest week, is in excess of 45%. And what Prasad has remarked is in quarter 4, we'll have the benefit as well because 180-day exclusivity runs till quarter 4. But obviously we won't be able to comment on the number.

Yes, that's it.

Okay. And then on the -- there was a news from some month's back that we have some VRS scheme in Mexican facility. So have we booked some onetime loss or one-off in the SG&A from there -- from that?

It was insignificant to our results, and we have not even disclosed that as a separate assessment adjustment to our financials. It's a very insignificant amount.

And for one final question that how we can look at the gross margins level and operating margins level this year excluding the olanzapine benefit. At what percentage level we have -- we can look?

Bhagwan, we don't mention product-wise gross margins. We don't comment on product-wise gross margins or what.

[Operator Instructions] The next question is from Ranjit Kapadia from Centrum Broking.

My question relates to the domestic market. Except this Stamlo Beta, Omez D, all other products are showing single-digit growth rate, and the nicest swing almost like 20% de-growth. So are we ever going to address this issue? And when you are going to have a market growth -- you are aiming at market growth for domestic market. So what is the optimist -- optimum level that we can expect this growth? When -- how fast you can expect this growth?

So I think, Ranjit, the numbers you are calling are all mass division products, which is where, I think, we had earlier commented in 2 quarters back that we had a problem with the territory alignment of our sales force. And that is work in progress. Two quarters back, we reported a growth of 5%. The last quarter, we reported a growth of 9% and this quarter we reported 11%. If -- we think this will take us a few more quarters, maybe 1 or 2 quarters more, to get back to at least industry growth rate, but actions have been underway. It's more to do with sales growth excellence, and that's why in the mass division, every product that you've named, whether it's Stamlo or it's Omez or it's Nise, it's all products that goes through our mass division. And that's where the problem is, and we're correcting that.

Okay. Sorry. And I -- how about the new product introduction in the domestic market? We have not mentioned the -- so are we active or we have a slow on that front?

We are active. We haven't mentioned it at this time because we won't give a number.

Yes, so we have launched 6 products this quarter. And cumulatively, this year, we have launched about 23 products, and a good part of this growth has come from new product launches.

The next question is from Sonal Gupta from UBS Securities.

Just on your guidance of FY '13 $2.7 billion. Do we still stand by that, and do we have strong visibility in terms of achieving those numbers?

Yes. I think we still stand by that, and we will be providing a further color to it, maybe in our May, June, post the result release. But as of now, we stand by it.

And just if you -- could you clarify further on the R&D spend step-up to 7% to 8%, which you're keeping for the future? If this involves, I mean, what will drive this, is this your expectation of biosimilar-related R&D costs, et cetera?

It's a variety of things. We stepped up R&D in generics also. There's also external partnership-driven R&D and, of course, Propriety Products and Biosimilars.

Okay. And finally, could you share what is the CapEx for this year? And what do you expect for next year?

So we expect to come in with CapEx at about $125 million to $130 million level. We've already done -- YTD is $94 million.

The next question is from Ravi Agrawal from Standard Chartered Research.

Just a couple of questions, one is the revenues which we booked from Teva. Is that subsequent adjustment entry which happens afterwards for either chargebacks or for any amount which is accruing to Teva, or is this a number which is net to us?

It is net to us. But going forward, at the end of the 180-day exclusivity period, there will be some adjustments. But nothing pertaining to this quarter.

So possibly in the first quarter next year, we'll be taking some adjustments to this.

Possibly.

Would that be in any quantification of what...

It can't be a quantified now.

As a percentage to?

No, it can't be quantified now.

Just to clarify, the current quarter's revenues will not get adjusted downwards or upwards. It's the final confirmation that we've received from Teva.

Right. The second question is you're mentioning the $21 million cash flow loss coming into the revenues. And I presume it's essentially coming because of the fact that you've booked -- you've taken hedges -- booking at a lower rate of INR 45 as you mentioned. Was it just -- if -- so if I have to look at the revenue for the rupee number -- if you have to look at the revenue numbers on an INR basis for the U.S., essentially, would that imply you take 99 at INR 45 and reduce that from the Q3 numbers?

If you are converting that to INR, yes, you would do that. If you are only looking at dollars, then you would not do it because this is largely on account of conversion trend.

Sure, sure. And my final thing is you've given some OTC numbers in your presentation for Russia. If I could have a like-to-like numbers for 9 months last year, if it's possible.

So we have that?

Yes. Ravi, we'll revert to you after the call.

The next question is from Sameer Baisiwala from Morgan Stanley.

Just a question on your Fuji Film tie-up for the Japanese market. Where are we in that transaction, i.e., have you signed the definitive agreement? And what are the key milestones that we should look forward to in next couple of years?

We haven't signed agreement yet. We are still in the process of developing a business plan. The next milestone would be an investment of agreement between them. But I don't think it'll happen in the next 3 months. I think it'll take longer than that.

Okay. And just a quick one on olanzapine. It looks like the -- we just continue to hold a fairly sizable market share from North America, 25%. So do you think your market share and pricing has pretty much stabilized for the balance part of about 3-odd months, or do you think they could -- there can be some more changes over here?

It's probably stable. It's probably stable from now on.

The next question is from Anshuman Gupta from Citigroup.

This is Prashant here. Any update on the alliance with GSK in terms of registrations done or supplies, et cetera?

Nothing of significance. We continue to file and the sales now are very small because only one of the markets, one of the products that opened up. So nothing significant to report today.

And does this form a reasonable part of your fiscal '13 guidance, or will it be very marginally one next year?

It will be marginally one next year.

The next question is from Hitesh Mahida from POG Securities.

Couple of queries. What were the sales from the antibiotic portfolio in U.S.A.? And so what's the view on the German market? How do you see things shaping up, the future?

We don't give product level revenues. So we're not giving that request of the antibiotics. The German market continues to be a country-driven market with pricing significantly below and that's continuing. There's no new development as such.

The next question is from Surajit Pal from Elara Capital. Surajit Pal - Elara Securities (India) Private Limited, Research Division: Umang, how do you see this? I mean, x olanzapine, if I remove that $99 million, so if I look at it, that gives me roughly around $422 million, vis-à-vis your average in first half is roughly around $445 million. Is it flattish x olanzapine?

Yes. Because if you look at Russia, and the reason for that is largely driven by Russia. And if you look at Russia, it's largely flattish, right. And that's a pretty significant market. So you -- so we are flattish sequentially, right. We are slightly flattish sequentially. Surajit Pal - Elara Securities (India) Private Limited, Research Division: Another thing is that you have mentioned the growth driver in U.S. market. One key product which is missing in that list is Allegra D24. How Dr. Reddy's placed presently in that product?

We don't share that level of granularity on products and the market share and price. Surajit Pal - Elara Securities (India) Private Limited, Research Division: But definitely, it's not growth driver in current -- I mean, Q3 sales number.

It has not been significant.

The next question is Koushik Pal from Kotak Mutual Fund.

Most of my questions have been answered. I just wanted to have some color on the RoW growth. It has been very strong this quarter. There, you did mention that there's an effect of GSK. So what is -- is this currency, or is there something else? What would be the growth in constant currency, if you can share?

It's largely on account of South Africa, and also, we've seen Venezuela. And actually, Venezuela had a devaluation in quarter 3 of last year. But for quarter 4, the rates are the same. And therefore, most of the growth in RoW was muted on account of the devaluation that happened in the previous year. But this trend in RoW should hopefully hold out, because the markets are smaller and they're growing.

Okay. If I basically look at the past 4 quarters, the growth has been pretty muted. So on that base, so over the next 3 to 4 quarters, can we expect sort of robust sort of a number?

Yes. I think we could look at possibly the average of -- we could look at growth in about 15-odd percent, but not higher than that.

Okay. Secondly, on olanzapine in the fourth quarter. I know you cannot share any number. But qualitatively, what I'm really trying to understand is there any level of channel stocking in the -- in Q3, which can affect, on a run-rate basis, revenues in Q4?

Possibly. There will be some element of some stock, so we can't rule that out.

The next question is from Arvind Bothra from Bank of America.

Just a question on the PSAI business. If you look at it on a sequential basis, we have a decline of 6%, whereas, we still did see some benefit from currency. Any comment on the outlook going forward as to the recovery?

That's a B2B business. There is bound to be some lumpiness in the business, and it's hard to have a smooth curve in a product that's -- which is -- a business which is dependent on product launches. So depending on the product launches, the business will have some change.

But on an annualized basis...

It's not a trend. On an annualized basis, it will grow.

Arvind, you should look at the YTD growth rate for that business, and I think that's the number that we're pretty comfortable.

The next question is from Bino Pathiparampil from IIFL.

Just a follow-up on the Glaxo deal. If you remember at the time of signing the deal, we were all expecting it to be a significant contributor to revenue by FY '13. So what has slowed down there? And what happened to the plans? Is it because of GSK's loss of focus, or it some other procedural issues there?

Nothing like that, and we didn't say it'll become significant in FY '13. I said we'll start having revenues in FY '13, and that will still continue. What is significant? I mean, it depends on how -- what you consider significant. It certainly will be tens of millions of dollars. But it won't be hundreds of millions of dollars. And for that to be meaningful, over $1-plus billion on Global Generics, it's going to take some time.

Right. But it will still be tens of millions of dollars?

Right.

Okay, okay. And second, on the Biosimilars. Your portfolio Biosimilars is probably one of the best in the world, but still I get a feeling that you are not that aggressive in going for active development of partnerships for the developed markets. So is it a part of your strategy that you will wait out a little bit more, do something on your own and before going all out and expect -- to enter developed markets or are you already at it?

I think you should wait for announcements when they happen, and I can't tell you how aggressive or not aggressive we are based on what we are doing today. But certainly, it's part of our ambition to be in the regulated markets.

The next question is from Jorge Mauro from Legg Mason.

I wanted to ask regarding Biosimilars. You have been very successful in India launching rituximab. Could we expect some Biosimilars launching in other emerging market countries, where currently some innovator drugs do not have patent protection? And -- I mean, could that be a new driver for Dr. Reddy's in the future?

Yes. We are in the process of registering rituximab and other Biosimilars in several markets, several emerging markets where the regulation allows for the registration, as well as the patents, allow the launch of the product. But like I said earlier, I think we are expecting in the next 2 to 3 years a revenue of about $100 million from the portfolio in emerging markets.

And the strategy would be similar to the one in India, coming at roughly 50% discount to the innovator price?

I think it depends on the market. In some markets, if there is competition, if it's driven by tenders, it can change. In markets which are branded and de-tendered, it could be higher.

And I mean, so far the experience in India, how high you think you may get in terms of market share in the markets in which you are allowed to compete with the innovator?

Again, depends on the adoption rate. Where there are incentives to save money, certainly the adoption rate is fast. And in India, we have been as successful as the innovator in terms of volumes. So we expect to be successful where the system drives an option.

The next question is from Prakash Agarwal from RBS.

A follow-up on Fondaparinux, actually. Just trying in understanding, this 18% market share is taking in account of retail as well as hospitals, or only the retail 40% market?

Prakash, we have -- this 18% market is for the entire molecule. And currently, we are only in the retail part of the segment.

Okay. So we have fairly good market share in the retail segment currently.

Yes.

That's right.

And in next 3 months, you expect to come into hospital segment as well?

Next 3 months, we expect to address our manufacturing issues totally, after which the supply [indiscernible] is ramped up.

Got it. And the second question on this olanzapine. I'm just trying to understand the numbers. Because what I understand is around a $900 million kind of product. And if I do -- I mean, the price erosion that we just discussed around 40%, market share of around 40%, so the total number comes around $100 million, $120 million. We already booked around $99 million. So have you booked -- I mean, is it too front-loaded, or is there something missing there?

No. But on -- the market share is about 60%. On the 20 -- you're talking only about the 20-milligram strength, right?

Yes.

Yes. So the market share is about 60% for our partner.

Okay. Did I not hear 45%?

No. That's 40%. 40% to 45% was the price erosion.

Okay. So basically, a 60% market share, and possibly, it's quite front-loaded as well, that makes sense?

We don't think so. We don't think so, because I think this is in line with the estimates that we had earlier as well. So we don't think that it is front-loaded. It's going as per what we have thought it would pan out to be.

Okay. So for the next quarter, other than the little pricing erosion, we don't see much of a diminutive value?

Yes. So the only thing I will caveat here is that the little pricing erosion may be quite significant to the shelf stock, which is lying in trade, because exclusivity expires. So we will make an estimate of shelf stock, which is in trade.

And in that case, do you set off, adjust the number and then report number?

Yes. We will be reporting net like any other product or shelf stock adjustment.

Okay. And just confirming, you said the full year tax rate, you're expecting around 23%?

That's right.

And the next year, you gave any -- some guidance, 20%?

No. It will be at the same level.

23% plus.

That's right.

So U.S. would continue to be a big chunk of our profits going forward?

That's right.

The next question is from Nitin Agarwal from IDFC Securities.

Prasad, I just want to understand, on [indiscernible] over the next 2 years, I mean, from this quarter onward and I guess for a while to come, we'll be throwing up a lot of cash. I mean, is there any -- or any thoughts about utilization of the cash? I mean, are we looking at to proactively fill -- to fill in some strategic spaces in a roadmap? Or -- I mean, how do we see this hold? Obviously, the balance sheet actually accumulating cash as we go along. Any thoughts about that?

There -- first of all, there is some debt. We'll pay down the debt. We also have an investment program into clinical development of certain assets. So there is an, actually, ambitious expansion program. So I don't see any -- drawing the cash for really inorganic matters at this point -- inorganic use at this point of time. But we'll be watching for opportunities which help us deepen our presence in our focused markets. If there's something interesting, we'll look at it. But as of now, we don't have a plan for that.

The next question is from Manoj Garg from Edelweiss.

All the questions have been answered.

Ladies and gentlemen, we will take one last question from Rahul Sharma from KARVY Stock Broking.

I just wanted clarity on the top products market share in the U.S. markets olanzapine 20 mg, olanzapine, [indiscernible] Fondaparinux you have given, but Allegra D24, Tacrolimus and Lansoprazole.

Rahul, we'll take those questions off-line, I could give you a list of market share.

Ladies and gentlemen, that is the last question. I would now like to hand over the conference back to Mr. Kedar Upadhye for closing comments.

Thank you all for joining Dr. Reddy's senior management on the quarter 3 FY '12 earnings call. In case of any additional clarifications, please feel free to get in touch with the Investor Relations team. Thank you.

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