Dr. Reddy's Laboratories Limited (RDY) Q3 2015 Earnings Report, Transcript and Summary

Kedar Upadhye - Head of Global Generics Finance & Investor Relations and Senior Director Saumen Chakraborty - President, Chief Financial Officer, Global Head of Information Technology & Business Process Excellence and Member of the Management Council Abhijit Mukherjee - Chief Operating Officer and Member of the Management Council

Balaji V. Prasad - Barclays Capital, Research Division Neha Manpuria - JP Morgan Chase & Co, Research Division Anubhav Aggarwal - Crédit Suisse AG, Research Division Manoj Garg - BofA Merrill Lynch, Research Division Lalit Kumar - Nomura Securities Co. Ltd., Research Division Surya Narayan Patra - PhillipCapital (India) Pvt Ltd., Research Division Girish Bakhru - HSBC, Research Division Sameer Baisiwala - Morgan Stanley, Research Division Nitin Agarwal - IDFC Securities Ltd., Research Division Chirag Talati - Kotak Securities Ltd., Research Division Aditya Khemka - Ambit Capital Pvt. Ltd., Research Division Anmol Ganjoo - JM Financial Institutional Securities Limited, Research Division

Ladies and gentlemen, good day, and welcome to the Dr. Reddy’s Laboratories Limited Q3 FY '15 Earning Conference Call. [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 of you, and thank you for joining us today for Dr. Reddy’s Earnings Call for the Third Quarter of Fiscal 2015. Earlier during the day, we have released our results and the same are posted on the website. We are conducting a live webcast of this call and a transcript shall be available on our website soon. Just a reminder, the discussion and analysis will be based on IFRS consolidated financial statements. To discuss the business performance and outlook, we have the leadership team of Dr. Reddy's comprising Saumen Chakraborty, our Chief Financial Officer; and Abhijit Mukherjee, our Chief Operating Officer; and Investor Relations team. Please note that today's call is copyrighted material of Dr. Reddy's and cannot be rebroadcasted or attributed in press or media outlets without the company's expressed written consent. Before we proceed with the call, I would like to remind everyone that the Safe Harbor language contained in today's press release also pertains to this conference call and the webcast. After the end of the call, in case any additional clarifications are required, please feel free to get in touch with the Investor Relations team. Now I would like to turn the call over to Saumen Chakraborty, our CFO.

Thank you, Kedar. Greetings to everyone, and I wish you all a very happy new year. Let me begin with the key financial highlights. For this section, all the amounts are translated to U.S. dollars at a convenient translating rate of INR 63.04, which is the rate as on December 31, 2014. I'm happy to announce highest-ever absolute sales and EBITDA for this quarter despite emerging market currency headwinds relating to Russian ruble and Ukrainian hryvnia. Consolidated revenues for the quarter are INR 3,843 crores or $610 million. We registered year-on-year growth of 9%. Revenues from our Global Generics segment are $503 million and grew by 8% year-on-year. Emerging market geographies grew 16% year-on-year, even after sustaining the currency pressure, particularly driven by Venezuela and Russia. Revenues from our PSAI segment are $97 million and grew 21% year-on-year. Consolidated gross profit margin for the quarter is 58.2% and declined by 230 basis points over the previous year. The gross margins for Global Generics and PSAI are 65.9% and 17.2%, respectively. This margin decline is largely attributable to unfavorable currency situation in emerging market territories. SG&A spend, including amortization and excluding impairment adjustments for the quarter, is $169 million and increased marginally over the previous year. We are targeting to realize the benefits of operating leverage, as well as cost optimization initiatives across our businesses in the coming period. Consequent to the decline in the recoverable amounts of certain products or customer contract-related intangible assets, a noncash impairment charge of $8 million was recorded during the quarter. You will recall that we have recorded a reversal of impairment charge of $8 million in the last year. This causes a swing in the year-on-year SG&A by $16 million. R&D expense for the quarter was $68 million, that is 11.2% revenues against 8.4% in the previous year. R&D spend is in line with our plan to scale up activities -- scale up in activity and follow the sequential trend. EBITDA for the quarter stands at $167 million, which is 27.3% of revenues, and grew 5% over the previous year. Tax rate for the quarter is 30.7% and for 9 months is 23.5%. However, as guided earlier, the annual effective tax rate is expected to remain in the range of 21% to 22%. Key balance sheet highlights are as follows: Our net operating working capital increased by $65 million during this quarter. This is partly due to buildup of stocks for our forthcoming launches and increase in receivables due to higher sales. Our credit period for various markets and the day sales outstanding ratios have remained largely same compared to the sequential quarter. Capital expenditure for the quarter was at $41 million. Our net debt-to-equity ratio remains at 0.1x despite the cash outflow of $50 million to acquire Habitrol. Foreign currency USD cash flow, it is for the next 18 months in the form of derivatives and loans, are approximately at $591 million, largely hedged around INR 59 to 62 to a dollar. In addition, we have balance sheet hedges of $411 million. We also have cash flow hedges of RUB 945 million at the rate of INR 1.50 to a ruble for FY '15. Considering the exposure to the oil-exporting economies, management continues to monitor the macroeconomic situation and maintain a fine balance between optimizing the opportunity and control the exposure. With this, I request Abhijit to take us through the key business highlights.

Thank you, Saumen. Greetings to everybody and I extend a warm welcome to you on this earnings conference call. I'm happy to report the satisfactory EBITDA performance by the company this quarter. All of our businesses continue the progress toward the targeted strategic goals while dealing with market-specific challenges. Specifically, for the U.S. Generics business, while the overall pricing environment has been stable until now, we're experiencing delays in approval compared to the expected timeline. For the emerging markets categories, the declining oil prices and the consequent currency movements is exerting pressure. Our presence in these markets is, however, very deep and strategic. Hence, our responses to some of these macroeconomic changes will be long-term in nature. Now let me take you through the key highlights for each of our key markets in -- for this quarter. Please note that in the section, all references to numbers are in respective local currencies. Revenues from North America generics for the quarter are $274 million and grew 17% sequentially. This growth was primarily supported by new product launches, pickup in regionally driven portfolio and certain market share in our key molecules. Like in the previous year, the holiday season induced a bit of forward buying as well. During the quarter, we launched Valganciclovir, Sirolimus and Fluconazole from the Rx portfolio. Also the Habitrol deal was got concluded and the seconds [ph] from our side have just commenced. We also launched OTC version of Fexo D12. This, together with Habitrol, will significantly widen our OTC portfolio. On the emerging market front, Russia continues to perform well with the constant currency growth of 27% year-on-year. This growth was on the back of a good season and some price adjustments taken during the quarter. Due to currency movements, there is a decline of 9% in rupee terms. Our team continues to explore the opportunity for wider portfolio and higher market coverage. As for IMS YTD 2014, we are growing faster than the market in volume terms in constant currency. As well, IMS OTC YTD 2014, we grew by 10% versus market decline of 1% in constant currency. Out of the other emerging markets, in rupees, Venezuela delivered better-than-expected growth on the back of continuing volume upside. The contribution from Venezuela has been quite meaningful throughout this year, while we continue to watch the currency and fund [ph] the presidential situation very closely. India position business posted revenues of INR 433 crores and grew by 11% y-o-y basis. Though the orders were deferred towards the end of December and accounting for these, we are in line with our recent trend of healthy market performance. Our growth and ranking in [indiscernible] terms is improving. Launches this quarter include Reclimet XR and Telsartan CT in the chronic segment. Reclimet XR is the first generic to be launched in the Indian market. Our PSAI business grew by 18% year-on-year, though marginally declined on a sequential basis. Considerable efforts are being made to achieve the [indiscernible] of sales growth and healthy margins. We are also looking at newer technologies and platforms to revamp our product offering and move higher on the innovation scale. As you are aware, during the quarter, USFDA gave us inspection, observations to fully perform for our Visakhapatnam API plant. We have responded about a month back to the agency in a very comprehensive manner with our clarification and the corrective and preventive action plans. We're also extending periodic updates to the agency, getting progress on our submitted action plans. We'll work diligently with the agency to resolve the open matters to their satisfaction. Before I end, I would like to highlight an important milestone reached by our subsidiary, Aurigene Discovery Technologies Limited. It has entered into a multi-program collaboration license and option agreement with Curis, Inc. to work on immuno-oncology and select precision oncology targets. Aurigene has the responsibility for conducting all discovery and preclinical activities while IND-enabling studies and providing Phase I clinical trial supply, and Curis has the responsibility for all clinical development, regulatory and commercialization efforts worldwide. This is a commercially meaningful deal and validates our practices in the discovery-led research area. With this, I now open the call for questions and answers.

[Operator Instructions] We have first question from the line of Balaji Prasad from Barclays.

It's been an interesting last couple of months. I would appreciate it if you can provide maybe some updates on: One, your view on the approvability of your Nexium filing? And also, last quarter, you had mentioned that you would be filing the first NDA on the proprietary side within FY '15, so pertaining on that?

So, Nexium, we have filed with the FDA and the exact timing of approval is difficult for us to comment on. So we would be looking forward to it. And it's an important launch for us.

Have you heard back from the FDA on your filing?

It's a file in progress, and it's pretty much in progress with FDA. So we'll -- we, at the moment, until we hear more from FDA, we can't really comment on that. It's an important launch for us indeed. As far as the NDAs are concerned, I think we are in line with what we had said earlier that probably in next few months, we will have 2 NDAs filed.

Understood, great. Secondly, can you also understand how the currency has impacted your business in Venezuela this quarter? Because looking at the growth numbers you posted, it looks like there's been no impact. Or has it been that constant figure was enveloped in what you reported?

So in the Venezuela, for our category, for medicine, the currency remains stable. So what we are really monitoring is repatriation of money from Venezuela. And that's why we are calibrating the sales there. The opportunity is quite huge, and we are growing there very rapidly. Actually, we were supposed to grow even at a faster rate, but we are calibrating that in view of how much cash we are being able to repatriate from that country. But these currency rates remain the same as of now, and maybe only after the election this year the government there may take some view on the official currency rate.

Understood. So this revenue momentum should continue in Venezuela?

It depends on our risk appetite, and we are calibrating that in terms of -- within the risk appetite. As much as we can grow, we'll grow.

We have the next question from the line of Neha Manpuria from JPMorgan. Neha Manpuria - JP Morgan Chase & Co, Research Division: My first question is on Russia. I mean, if you look at the quarter, is all the impact from currency taken into account? How should -- how is the underlying growth? We did see an improvement in constant currency basis. But there were some concerns on how the volume and the markets have been. And second, the price adjustments that we have taken. Is this for all of our product portfolio? Or could we see more price adjustments to offset some of the currency pressure?

So first is we already said in constant currency there isn't a good growth in Russia. And in terms of the currency impact, we earlier said that there has been some, I know, around 30%, probably around 30% of the cash flow. [indiscernible] for last year, we hedged. And that is at a higher rate than what are the rates prevalent during this quarter. In terms of the price increase, you cannot take price increase across all products. There are categories which are essential products, for example Omez, will come in that category, but we cannot take a price increase. Neha Manpuria - JP Morgan Chase & Co, Research Division: So just to rephrase my question, the price increase that we have taken on products that are not under price control, has all of that flown through? Or can we expect some more to come through in the current quarter?

That will depend on the currency. And if there is more opportunity which is there, one can always look at it. Neha Manpuria - JP Morgan Chase & Co, Research Division: Okay, fair enough. And so my second question is on the SG&A side. In your press release, you mentioned about SG&A increasing because of additional manpower deployment. Is this to any specific business that you've done on the sales force side? Or is this general manpower deployment?

No, there was nothing specific.

We have next question from the line of Anubhav Aggarwal from Crédit Suisse. Anubhav Aggarwal - Crédit Suisse AG, Research Division: Yes. On Tashir [ph], actually some more clarity. The constant currency growth of 27%, how much would be the volume growth there?

Largely, it will come out of volume growth, more from volume growth than from price. Anubhav Aggarwal - Crédit Suisse AG, Research Division: Yes, that's very clear. But I was just ask -- I wasn't asking the price increase, and I was just asking the other way around. So the price increase would be, let's say, low-single-digit, that's what we can assume. My concern here mainly is from a perspective that given that currency is an issue for everyone, there may be a chance that other place may be receiving. So is there a chance that you put exchange rate in the channel in order that you can get a higher market share than others are receiving?

We, from finance, always calibrate multiple things, including inventory, receivables and then try to calibrate what is the right kind of focus to put. We didn't given the opportunity to sell which is there in a country. Anubhav Aggarwal - Crédit Suisse AG, Research Division: So Saumen, what would have been your secondary growth in this quarter or this year?

Yes. The data on secondary fully is not available. What are the -- let's look at the story in totality. I think in a market where currency has taken a hit, the volume growth has been robust for us. Historically, if you look at our portfolio, we -- on the pricing side, we were conservative to say that our growth on volume has always been higher than the market where a lot of -- and the competition -- it was large -- price-driven growth. So there's some adjustments which we are doing now, and there is a great volume growth. Having said that, you probably have picked up the hedging points that Saumen mentioned, which we have up to a certain period. And then, the hit would be a little larger than what it is visible today. What is very -- we are excited about, overall performance in the market in terms of volume growth. I think if you leave it at that, I think it will always definitely give you an idea of how things are. Anubhav Aggarwal - Crédit Suisse AG, Research Division: I just wish just one more clarification question before I ask my second question. Given these scenarios right now, your understanding of Russian markets as of today, on a constant currency, what do you think is the outlook here? Can we grow it, let's say, about 15% kind of growth in constant currency for the next 12 months in Russia?

You know very well we do not give any guidance. Anubhav Aggarwal - Crédit Suisse AG, Research Division: Well, I'm just trying to gauge them, just -- I'm not looking or guidance. There's a different between going [indiscernible] with the 15%.

Not likely, with ruble from 34 to 60... Anubhav Aggarwal - Crédit Suisse AG, Research Division: Constant currency. I'm asking constant currency.

On the local currency, you're saying? Anubhav Aggarwal - Crédit Suisse AG, Research Division: Yes.

Not impossible. Anubhav Aggarwal - Crédit Suisse AG, Research Division: Because with the GDP growth in Russia coming down, your business 40% coming from OTC, that's why I was asking those question that you still have the confidence that 15% is possible.

Pharma is at the lower end of getting affected due to such pressures. The first thing which should get affected, of course, are luxury items. And by nature of the sector, I think pharma comes in far later down the line. We are not seeing any of those situations at the moment in pharma. Let's see how it pans out. Anubhav Aggarwal - Crédit Suisse AG, Research Division: Yes. Second question for me is on Srikakulam specificity. You have 68 in India spending. How many of those are from Srikakulam? And this is the first part of the question. Second is, in general, for the next 12 months, you've been saying that you expect about 12 to 15 approvals over the next 12-month period. Would the expectations still the remain the same?

I can't fully comment on exact numbers and all that. As we've said -- your question is if there's -- Srikakulam is going to impact. As we said, we have answered -- I mean, most of the contents of the provisions are in public domain. So if you go through it, we have completely answered all that. And as we speak, we are about to send an update on the commitment, which are broadly in order. Let's see how it pans out. And in any case, there's always alternate plans of keeping the file going. So those plans are kicking in. Difficult to comment further on this.

We have next question from the line of Manoj Garg from [indiscernible].

I also have a few questions on the Srikakulam facility. First, can you confirm on whether the Nexium ANDA was primarily filed out of facility? And then 2, it's our understanding though while not at an official warning letter state that the FDA is withholding approvals out of that facility until the 483 is resolved. So can you update us on that?

So yes, the API for Nexium was from that facility. As I said, alternate plans are being progressed as we speak. On -- specifically on the facility response, as I said, we think it's a comprehensive response. We think the actions which we have committed are under way. Beyond that, I certainly can't comment anything more because we haven't heard back after we have sent in the response. So we would keep sending updates and see how it goes.

Okay, great. And then, just -- last question for me. So we're a little bit surprised given the number of ANDA filers that there were on esomeprazole that in the first wave, the FDA chose to approve only one. So can you just educate us a little bit about some of the difficulties with maybe the API of that product? And what could be causing the lag at the agency?

I -- we certainly -- since we developed the product, we have the insights. But we wouldn't be able to comment in great details because that would be public domain information. But the product is, from a viability, a complex product. And there was also -- there were other hindrances from the API side because of patents earlier, which are valid. So both, combined with the complexity of the APIs through non-crystalline rules, the viability of the finished of age [ph], I think has created some hindrances for players. But we don't know, we can't comment for others. But I guess these would be the probable reasons.

Okay. And then, I know you don't provide forward guidance, but would you expect generic Nexium revenue in fiscal '16?

We won't comment on that. This is an important filing which we'll be following up on.

We have next question from the line of Manoj Garg from BofA Merrill Lynch. Participant has moved out of the queue. We will move on to the next question, that's from the line of Lalit Kumar from Nomura Securities.

My questions have been answered.

We have next question from the line of [indiscernible] from [indiscernible].

Could you please throw some light, is that -- what is the game plan for Habitrol going forward? Is there any kind of line of product you are looking for -- expanding to that area? Second question is that given the fact that it is also transdermal patch, so what do you expect the early results you're thinking into that kind of technology-driven generics moving forward?

So this is the smoking sufficient area, which is about $1 billion in U.S., out of which about $600 million are in gums and lozenges. Patch is only about $200 million between Habitrol and -- Habitrol is about [indiscernible], I told you that, and the GSK brand. So -- and the balance is in the e-cigs area. So as we settled out in Habitrol, after that, it'll be a natural progression in looking at gums and lozenges in this sector to see whether we can carve out some share of others.

Are you also thinking to get into transdermal patch technology-driven product in generics?

We already have filed a few, are in the process of development of few more.

We have next question from the line of Surya Patra from PhillipCapital. Surya Narayan Patra - PhillipCapital (India) Pvt Ltd., Research Division: Just wanted to have an update on this Propofol opportunity. We have already -- the litigation is awarded and we already got the positive response -- positive result on that. And possibly, we are waiting for the FDA approval. So when do you expect this to bear for us?

We are waiting for -- you're right, absolutely. We are waiting for the FDA approval. One that's difficult for us to comment actually, so we will track this closely. Surya Narayan Patra - PhillipCapital (India) Pvt Ltd., Research Division: Okay. So in fact, it is already approval a few months now after the verdict is out. So should we be expecting the near future that -- for the Propofol?

So verdict has not much to do with the approval speed. And so that's 2 different streams. So we would be waiting eagerly. Surya Narayan Patra - PhillipCapital (India) Pvt Ltd., Research Division: Okay. And on the [indiscernible], how do you see whether -- when do you expect the companies to come for the wells aid [ph]? Do you think it is gradually with everything? Or it could be a kind of immediate [indiscernible] that should be expecting for this?

Again, this is -- I won't be able to guess. But I wouldn't say that it will be a jailbreak type of situation where a lot of people launch. It would be somewhat gradual, I guess. Surya Narayan Patra - PhillipCapital (India) Pvt Ltd., Research Division: Okay. And just last question on the PSAI [indiscernible], in the last call, we are expecting something like a substantial improvement on both the growth front and the margin front for the PSAI segment. But things have not -- it declined quarterly -- this quarter, growth front. So when do you -- so what were the kind of issue there? Or when actually we are just waiting a kind of a progress with both on the growth, and as well as it is the margin front. This quarter, there is a growth of 21% that is for sure, but it is [indiscernible].

Yes. On the margin, there has been some impact of quite a bit of an inventory -- flowing inventory provisioning that we have taken. Hopefully, the margin front, it would improve in the next quarter.

Yes. Surya Narayan Patra - PhillipCapital (India) Pvt Ltd., Research Division: And any visibility that you're awaiting on the growth front and [indiscernible]?

Yes, so we are recalibrating this business. We are very conscious that this is an important strength for Dr. Reddy's. So we would do the business in a way that's a little more value-accretive to the company on an overall basis. So firstly, [indiscernible] while we would be seeking growth, but it could be -- not be as robust as it used to be in the past. Surya Narayan Patra - PhillipCapital (India) Pvt Ltd., Research Division: Okay. So that means that we are changing our earlier indication that possibly second half of FY15 we figured percentile growth or sequential growth in that business?

You're right.

We have next question from the line of Girish Bakhru from HSBC.

A question on U.S. again. So on [indiscernible] what is the view after the ruling? Where do you see the situation be, suppose no approval comes until September 15 expiry?

We have some way to go. As we said, we had filed. We have just very recently got the first set of questions, and we'll need a little time to sort of do the experiment and sort of few months to respond. And then, it will go on its own progression, I guess. It will be difficult to comment on this, but it's certainly not in the very immediate future.

So can we still call it like a 2015 product? Or would it go next year more or less?

So as I said, we have to respond to the deficiency so then there could be some more questions, and then beyond that, it would be difficult to guess.

Right. Second one, again, was on the injectables portion. I mean that has been doing pretty well. So if I have to just look at the quarter-on-quarter movement of the U.S. side, is it -- gain more traction on the injectable products or the other [ph] side is a big contributor?

Well side [ph] is a significant contributor. Injectables have done well. All the [indiscernible] market shares you have, they've done well. Some new launches, momentum, [indiscernible] injection, so on and so forth. Rapamune has been a good launch. And so the rest, we'll see. I mean, difficult to comment beyond that how things pan out in subsequent quarters.

And just lastly, getting on the bigger picture in the U.S., if I have to suppose, I mean look at it from where the injectables portion will go from current to $50 million [ph] run rate to, say, in next 2 years where -- are you working at some number that you can probably give us color on?

The large part of the filings and the portfolio in development is in the injectables area. So it would certainly, as a percentage of the total turnover, this would go higher in years to come. And so important thing is we have to keep launching products. Otherwise in generic market, everything erodes with time. But we'll have to ensure that we keep launching. Broadly we are bullish on the [indiscernible].

We have next question from the line of Sameer Baisiwala for Morgan Stanley.

A quick question on Srikakulam. My understanding has been that over the last few years, FDA generally doesn't stop product approvals with the 483s. It requires a warning letter. So why is it that for you, FDA has taken that stance?

I'm not fully certain that there is nothing in between warning letter and some delay in approvals. Having said that, beyond that, I can't comment. And if your question is a direct question that -- are we getting warning letter? I don't know. I mean, that's not our expectation. We have responded comprehensively to the 9 483s. We are sending an update as we speak, and let's see how that pans out.

And so when you say that it's something between 483s and warning letter, you're saying that by your experience in other sites?

No, I mean, not necessarily. I mean, everything -- a delay in approval means that it is a warning letter. I'm not sure that statistic is right, but certainly, I would look into that statistics. But to the best of my knowledge, that is not a given situation.

Is this suggestive of the severity of the observations in any way?

So observations are in the public domain. You have read observations. What we -- what is not in the public domain is our answer. We think we have answered quite comprehensively to all these. So areas which we need to improve are documentation control, more of people training in understanding how to deal with some of the investigations and so on, so forth. But I think we have answered fairly comprehensively, but we'll see how it pans out.

But just your personal [indiscernible] and since it's very, very important for everyone [indiscernible] on that, so observations such as readings falling out of specifications being recorded as falling within the specifications. Does it not really border on the lines of data integrity issues? What is really your internal assessment on observations such as these?

What you read is the observations by FDA. What you don't have are the rationale and the reasoning and the answers on these. So what I'm telling you is what -- is we have answered fairly comprehensively on most of these. Are there insights and learnings? Yes, they are insights and learnings. But we have -- we think we have answered fairly comprehensively to most of the observations. Partly, if you read observations, that won't give you the full story.

Fair enough, sir. I'll just move. So the second question is, so that you would alternate plans are being progressed, I'm sure you're referring to the site switch. And what is the time -- site switch for the APIs. And if that's the case, how much time do you think this could take?

As a matter of [indiscernible] to your question, it is indeed site switch [indiscernible] transfers. Should be -- we'll put the highest strategy to this. I wouldn't give you the exact timeframe. But it's not a long-drawn affair.

Just my understanding is [indiscernible] Nexium is very, very important to you and to us. So therefore -- so my understanding here is based on the other companies' experience. You would be required to do a stability test and which probably is the -- with the new samples from the new site, which is something that takes up a fair bit of time. So I would say that anywhere from 9 months or 12 months at the minimum. Would you not agree with this kind of timelines?

So if you exactly follow steps -- these are regulatory views, Sameer. I am not an expert, firstly. But if you take exactly similar process, scaled-up version of that and then certainly it should not take much that time. It should be much lesser.

Okay. And if it's exactly the same process, you probably are referring to your own site?

Yes.

We have next question from the line of Nitin Agarwal from IDFC Securities.

On Venezuela, something you referred about, the monetary repatriation situation, I mean how should one read it? What is that exposure right now in terms of our existing [indiscernible] there which you need to repatriate? And how did it grow over the last few quarters?

So we did repatriated money at the official exchange rate for our category, for the medicine category. And we have been getting till the month of September, October at a fairly good pace we have been getting. So lately we have been following it up but -- actually, we have been calibrating, so basically are now -- today's exposure will be in the vicinity of around $15 million to $20 million.

In terms of the pending money that we need to repatriate...

[indiscernible] money we will repatriate.

Okay. So I mean, to the extent that the calibration of the exchange rate, that amount will be subject to whatever [indiscernible] if that need arises?

If the official exchange rate changes, and to that extent, we'll have to take a hit.

And we currently booking our sales and you report them at the official exchange rate?

Of course.

Okay. And secondly on Russia, with the movement that has happened in the quarter, you are obviously partly covered with these global hedges. But have we had to take certain impairment translation losses on the uncovered receivables?

No.

But how would that be if you not covered the whole -- the entire receivables?

The receivables are completely hedged. What Saumen was referring to was the [indiscernible].

Okay. So...

Again, when I about 30% of the projected cash flow, [indiscernible] balance sheet hedging that we do complete 100% everywhere across and the close [ph].

So going forward, I guess [indiscernible] to what you're referring is when the full amount -- extent of the depreciation of the ruble begins to hit us, our sales realization will begin to come down. There will be not be any real exposure or you're not exposed to any cancellation losses on the hedges -- or on the receivables?

Yes, because balance sheet we do it on a regular basis. I mean we keep on doing it on a dynamic basis. Where a cash flow hedges something, we do it sporadically.

We have next question from the line of Chirag Talati from Kotak.

Firstly on Venezuela, I mean, we've seen a lot of companies globally take on big write-offs on -- based on reporting standards. And some companies have even stopped reporting the sales given the currency devaluation that is there. How would you view that in light of your growth coming out? I mean, how should we view this going forward for next quarter is it likely that we should build in a 90% decline?

Let's put it this way that if you have crossed $100 million in sales in Venezuela already in this financial year, if suddenly there is a currency devaluation by 100%, then we come down from $100 million to $50 million in a dollar term. So -- but the thing is that we have grown very rapidly in Venezuela in dollar term given that official exchange rate has already contributed to our P&L substantially. Now what is the exposure? Today we're having whatever is the cash that is in lying in Venezuela, which has not gotten repatriated. That was the previous question which came why I answered that. If there is a currency devaluation happen, that particular money, then we'll have to take a hit to the extent there is a devaluation. And following that, we'll have to, again, in a local currency term, what happens in this kind of situation that you get tremendous growth in volume. And everybody gets accustomed to take your medicine. So when the situation gets back to normal, you get a tremendous base, something which we have experienced in Russia earlier and something in Venezuela we have been growing [indiscernible], people are getting accustomed to take our medicine. And we believe that -- and these are molecules -- it's not a new product launch. These are actually quite old molecules that we have, the brand which are quite public, but we have been seeing unprecedented rate of growth. So with that, we have a higher rate of volume and if we want to continue growth on that, it is good for us. But in terms of the total dollar sales, it could be subject to what would be the currency devaluation whenever it takes effect.

With the past 2 months, you received the last tranche in September. Over the past quarter, have you got any pushback from the government while converting your bolivars into dollars?

We have not got push back, but it depends -- a lot of follow-up is required and sometimes it helps even if you do it at a bureaucratic level.

And finally, how much price increase would you have taken in Venezuela in this quarter given the inflationary pressures there?

Chirag, we won't be very specific with those. We have taken some adjustments. Product by product, those percentages vary -- not very substantial.

The next question is from the line of Aditya Khemka from Ambit Capital.

I have 2 very quick questions. Firstly on Copaxone, so let's say on generic Copaxone, you do not get approval till September 2015, does -- would that mean that whoever player can manage to get an approval, other Para III filers for the 2015 patent, if they can manage to get approval in case they have done full-scale clinical trial. Those people would get approval at that point in time?

Yes. If anyone has done, there's only 1 player who has done clinical trial in -- I'm not sure whether they have submitted the data for U.S. But rest of the 2 filers ahead of us, to the best of our knowledge, similar strategy as we are doing on the characterization. It has to be a good job of characterization. Depends on who does that when sort of get the approval.

Right. So -- but my question specifically wanted to understand was that the first-to-file exclusivity for the other 2 players other than you -- so that the two first 2 files, that exclusivity will probably be forfeited in September '15 because the third player was [indiscernible] clinical trial, it would get approval in September '15?

I don't be able to -- I won't be able to comment on such details, to be honest. I mean I will look at strategies in that detail. As I said, we have got our first set of deficiencies. We'll work on this, respond, and we may be getting a few more questions and will focus on our own approval, because we don't know a lot about others actually. It's not in public domain.

That's absolutely fine. What I wanted to also understand in this case is -- so these follow-ups that you've gotten from the FDA, are these follow-ups sort of in excess of the selective gene expression studies that they had previously asked you to do? Or is it just some clarification on the selective gene expression studies that they had asked to do?

So it's some characterization. So naturally FDA will be looking at a lot of confidence on [indiscernible] process and characterization and other things. So the question's in and around that, and so there is a lot of additional effort which has to be given to answer those questions. Specifics, again, let's leave it for the time being. But in a characterization-based approval for a product like this, they are looking for a lot of confidence that it would indeed be a similar fingerprint.

And so my second question is on your SG&A expenses, y-o-y growth that we are seeing, is it that our growth, SG&A expenses in Russia would have also sort of decreased because of the ruble issue? So is it that the Russia expenses have already fallen right away while the rest of the business SG&A expenses have grown at a normal pace, thereby giving us this blended sort of low single-digit growth in all our SG&A expenses. I'm talking about the amortization expense.

Yes, so you are right to the extent that [indiscernible] helped us in terms of net income [indiscernible].

We have next question from the line of [indiscernible] from Goldman Sachs.

So percentage of Russia biz are under price control?

I'm sorry, what? In -- could you repeat your question, please?

What percentage of our business in Russia is under price control?

The essential drugs, half -- there is almost half of our businesses is under price control.

Okay. And in terms of the [indiscernible] Russia [indiscernible] and the related costs. In other fields, you are reporting at the hedged exchange rate because also then you are reporting at that exchange rate or are you reporting at the spot?

No, that will be at spot.

It is cause for [indiscernible].

It is going to the top line, right? Cost are being reported at spot?

Yes, but if it goes to the top line, cost for a large part of the portfolio is in Indian rupee, so it's rupees anyway.

Of the sales and marketing costs in Russia.

Yes.

So that will be in spot exchange rate [indiscernible]?

Yes, currently. Right.

Okay. Second question, sir, would be Srikakulam API plant. What will be our exposures currently including the PSAI business?

We can't speak on those things. As we said, let's focus on moving ahead with it. Let's be forward looking at the other hand, rather than the exposure and all that.

Definitely we wish you all the best. And you know, in Russia, coming back to Russia, you know they have gone through many price increases in this quarter. But [indiscernible] one would have expected a lot of price increase [ph] recently, particularly even that price increases did not happen.

So the risky [ph] effort will be factored. We have taken some adjustments during the quarter on the nonessential portfolio.

Okay. But [indiscernible] growth, you said all of it is volume, so I thought there's no...

We didn't say all. We said major part of it come out of volume, and there was a specific costs check [ph].

Right. But is there any price increase that you have taken towards the end of the quarter which is not fully reflected?

Could be. Could be, [indiscernible].

We have next question from the line of [indiscernible] from [indiscernible].

So I'm just trying to still understand the impact of the currency, I mean, fluctuations in Russia for the quarter. And in the same currency, what should be the outlook because of that?

Outlook is very difficult.

You mean the same currency. I mean...

If we put it in a right here, right now, you can't really think of hitting the product, premium is very high. So you'll have to really now look at what way the Russian currency is going to be. It is anybody's guess. But then again, some betas [indiscernible] it can become what [ph].

And what is the impact in this quarter? Like how much hit have we taken? And is it like reflective of the entire impact? Or it is just part of the quarter that has been impacted?

Had there has been no depreciation of ruble against Indian rupee, we would have reported at least 100 crores more on profit.

Okay, so the 100 crores is the impact this quarter. And this is reflective of the full impact for the quarter? Or it is still -- it's like, because the ruble depreciation happened sometime in the end of the quarter, it is still not full impact.

It happens. You are only comparing year-on-year basis in FX.

Right. But on a year-on-year basis, I mean, the currency in this quarter has changed significantly, right, in the start of the quarter and the end of the quarter.

Yes.

So if the current rate were to be there at the start of the quarter, the hit would have been more than 100 crores. Is that a fair understanding?

Yes.

Okay. So I mean, can I get a sense of how much more it could be?

Difficult to give it.

I think Saumen mentioned that there was some hedging, so you can calculate. I think it's all he read out and was just saying that there was hedging, and which is on for a while and beyond a point, it will not be there. So based on that you can make some assumptions.

Yes, I understand. Okay, fine. Okay, next question is, generally, what do you think -- I mean, we were to expect some kind of launch from our acquired company, OctoPlus. So where are we? And I just assume that it would be a high-value launch? So any outlook on that?

Yes, so these are very complex injectables and [indiscernible] products and all that. So they are in a stage of development where 1 or 2 are getting closer to exhibit that. But having said that, there is also a limit to follow these some -- something can be smaller, something can be little longer. So if you're saying that is it going to be sort of filed very soon? No. Within a few quarters? Yes.

I see. So earlier we were talking about -- like few quarters back within the next 4 quarters. So that is no longer there, so it's like lots of -- like are still about a year away, even the filing.

I am not sure exactly what we messaged. I won't be able to comment on that. The approval thing one, these are complex products. Each of those have its own challenges of understanding very deeply. One thing we are clear that no -- some of these products have, others haven't cracked, which probably gives UN [ph] an idea of level of complexity. So as in maybe [indiscernible] that this will be much more sustainable than others.

Understood. Fair enough. And are you going to conduct the R&D day that you were otherwise telling last quarter?

Yes, we will. But we have not yet decided the final dates. I think Kedar will communicate with you as soon as we decide.

We have next question from the line of Anmol Ganjoo from JM Financial.

Most of my questions have been answered. But just to develop the Russian question a bit more, I understand that the secondary sales figure for this market is not available, but it could be fair to assume that the growth in that market has been accompanied market share gains? It was 27% constant currency [indiscernible] underlying growth of the market. And also given that the price increases have been rather modest. So what would you have attributed this to -- I mean, in terms of competitive behavior, because other market share gains at the expense of someone else and would it be fair to assume that their risk appetite is slightly different from ours?

So let me also clarify. I think some of the articles have come in public domain as well. You see, in -- when a turmoil of this sort hits Russia, and in Russia, people have seen -- this is not the first time we are seeing a bit of a turmoil. There is some bit of forward buying by -- directly by patients, anticipating price increases and testing. So overall, we don't have official data. But there is good secondary movement because [indiscernible]. Now will it -- how long and how well is it surging? We'll have to see. A part of that has been contributed by forward-buying medication. Also, we -- our portfolio is very rich in body ache, cough and cold fever area, some of the OTC products are very big, some of the Rx products are very big. So these are not at the top end of high pricing -- it's not that much affected by these devaluation aspects. Some of those have played out. We'll wait and see. I mean, there are a lot of questions on Russia. I fully understand. We are also waiting to see how things pan out. So far, so good. I mean it is going okay. Of course there is a hit. There's a big hit, 34 to 65. Who can make up everything? No way possible. So it would help -- this will be more and more as we go through the quarters. But overall performance is robust. I think broadly based on that, I think you draw your conclusions.

And my second question is that, on R&D, we've kind of guided to a broad range of 10% to 11%. And although marginally, this is the second consecutive quarter of we having reported 11%-plus kind of R&D expenditure. Would it be fair to assume that most of our cost allocation [indiscernible] programs is now peaking out and this is the peak in terms of R&D spend relative to sales?

No, when there is a ruble depreciation, vis-a-vis in rupee term, our sales is coming down compared to what we have planned. To that extent, R&D as a percentage of sales is becoming higher than 11%. So I think it may be difficult to contain within 11 -- it could be 11 flat.

So in terms of an absolute number for the full year for R&D, what is it?

The absolute number, whatever we plan for annually will be in a kind of a -- what have we planned in absolute R&D number in [indiscernible] in the end of the year will be there. But because of the currency effects on sales, that percentage in some basis point, it will -- it could be higher than 11.

So also we said that in the next few months, we -- this is the back end of the India filings, which are likely to happen in the next few months. As we have said, we are on track on that. So some of that has also -- are going to have some impact as well.

Right. And my last question, if I can just squeeze in last one, is that you did mention about forward premiums on ruble being extremely high. So in that environment, would we be able to kind of completely hedge the balance sheet as you alluded to? So basically, I'm trying to understand that the translation losses can be completely ruled out, because it might involve us buying forward premiums at extremely expensive rates.

So I think we have a different approach on a cash flow hedge and a different approach for a balance sheet hedge. So far as balance sheet hedging is concerned, the way we do it, we have been always doing it on a very dynamic basis. And every month, we basically, it's a one-off [ph] kind of a thing. Whereas in a cash flow hedge, we never used to do it for the ruble. We only used to do cash flow hedge for USD. Ruble, we started to doing a few months back, and we only done it for FY '15. And now at this point of time, I find it very difficult to do anymore cash flow hedge for the next financial year. Given the current rate and the forward premium rate, we could get. But balance sheet, we always look at not country-specific, overall global listing. And there, we have been doing well. Every quarter, we have been reporting ForEx gain out of our balance sheet hedging which is being done.

One last question, please?

Due to time constraint we'll take up the last question. That's from the line of Anubhav Aggarwal from Crédit Suisse. Anubhav Aggarwal - Crédit Suisse AG, Research Division: One question on Habitrol, very positively surprised only $80 million you got [indiscernible] $60 million. What -- on the back of envelope calculation, payback on this product less than 4 years, is it?

No, Habitrol, there was a mandate for them to close the bare [ph] deal between two of them. It was mandated to sell. So it was basically, there would be only limited number of players who could have bought it. Against that, we have taken it. So payback, it will be few years only. Anubhav Aggarwal - Crédit Suisse AG, Research Division: Probably about 4 years? That would be not much longer than that.

We will not exactly respond to that. But as you have likely figured it out, it will not be a very long [indiscernible]. Anubhav Aggarwal - Crédit Suisse AG, Research Division: And just 1 clarity on serial numbers -- when do you expect our next combination to come in that market?

I beg your pardon? I couldn't understand. Anubhav Aggarwal - Crédit Suisse AG, Research Division: On serial numbers product in the U.S. [indiscernible] when do you expect the next combination to come?

No, we have not heard anything in the market to indicate an immediate entry. So beyond that and in generics, balance immediate entry is a few months. But beyond that, we really don't know. I mean, someone's getting it through. But otherwise, currently we and the [indiscernible].

With this, I now hand over the floor back to Mr. Upadhye for his closing comments. Over to you, sir.

Thank you all for joining Dr. Reddy's senior management for our Q3 FY '15 earnings conference call. In case of any additional clarifications, please feel free to reach out to Investor Relations team. Thank you, and good day.

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