Dr. Reddy's Laboratories Limited (RDY) Q1 2020 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and a very warm welcome to the Dr. Reddy's Q1 FY '20 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Agarwal. Thank you, and over to you, sir.

Very good morning and good evening to all of you, and thank you for joining us today for the Dr. Reddy's earnings conference call for the quarter ended 30th June 2019. Earlier during the day, we have released our results and the same are also posted on our website. This call is being recorded. The playback and transcript shall be made available on our website soon. All the discussions and analysis of this call will be based on the IFRS consolidated financial statements. To discuss the business performance and outlook, we have the leadership team of Dr. Reddy's, comprising Mr. Erez Israeli, our COO; Mr. Saumen Chakraborty, our CFO; and the Investor Relations team. Please note that today's call is a copyrighted material of Dr. Reddy's and cannot be rebroadcasted or attributed in press or media outlet without the company's express written consent. Before I 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. Now I hand over the call to Mr. Saumen Chakraborty. Over to you, sir.

Thank you, Amit. Greetings to everyone. Let me take you through the key financial highlights for the quarter. For this section, all the amounts are translated into U.S. dollar at the convenient translation rate of INR 68.92, which is the rate as of 28th June 2019. Consolidated revenues for the quarter are INR 3,844 crores. That is $558 million and grew 3% year-on-year. However, it declined by 4% on a sequential quarter basis. Adjusted for the amount of INR 181 crores, pertaining to the sale of U.S. rights for PP Derma products in the previous quarter, the sequential quarter growth is flat. The year-on-year growth in revenue has been supported by the new product launches and an increase in the volume pickup across our Global Generics market. This growth has, however, been partially offset due to a sharp decline in the revenue of PSAI business, priciness in the generics market and absence of derma product sales, which are divested in the previous year. Consolidated gross profit margin for the quarter is 51.7%, which is sequential quarter decline of 70 basis points. Adjusting for the PP Derma contribution in previous quarter, the gross margin has improved by 150 basis points sequentially. Gross margin of Global Generics segment is at 57.6%, which has been partially impacted due to flowing inventory provision on a specific product, impacting the segment margin by almost 80 basis points. Gross margin for PSAI is at 7.2%, which has been majorly impacted due to lower sales during this quarter. The SG&A spend for the quarter is INR 1,207 crores, that is $175 million, which is at similar level as last year and declined by 3% on a sequential quarter basis. The SG&A cost percentage to sales declined from 32.5% in Q1 FY '19 to 31.4% in current quarter. The decline in the expense related to Proprietary Products commercial business were partially offset with an increase in the expenses relates to manpower cost increment and an increase in advertising charges related to new launches. R&D spend for the quarter is INR 361 crores. That is $52 million and is at 9.4% of the sales for the quarter. The R&D spend is lower by 13% year-on-year and lower by 1% on a sequential quarter basis. The R&D spend, however, is expected to increase during the balance of the year. Other income includes INR 346 crores received from Celgene, pursuing to an agreement entered towards settlement of any claim the company or its affiliates may have had for damages under section 8 of the Canadian Patented Medicines. That is notice of compliance, regulations in regard to the company's ANDS for a generic version of REVLIMID brand capsules, that is lenalidomide, pending before Health Canada. The EBITDA of the quarter is INR 1,134 crores. That is $165 million, which is around 29.5% of the revenue. The effective tax rate for the quarter is 22% and we expect to be around similar levels for this year. EPS for the quarter is INR 39.91. Operating working capital decreased during this quarter by around INR 75 crores, which is $11 million. The decrease is attributable to a decrease in receivables, partially offset with an increase in the inventory. The net working capital days has marginally improved over the last quarter. We invested INR 106 crores, which is $15 million towards the capital investment in this quarter. The free cash flow generated during this quarter was INR 850 crores, which is $123 million. Our net debt-to-equity ratio has improved further and is at 0.04 as on 30th June 2019. Foreign currency cash flow hedges for the next 9 months in the form of derivatives for U.S. dollars are approximately $345 million, largely hedged around the range of INR 70 to INR 73.9 to the dollar. In addition, we have balance sheet hedges of $361 million. We also have foreign currency cash flow hedges of RUB 2,400 million at the rate of INR 1.075 to the ruble, maturing over next 9 months. With this, I will -- I now request Erez to take through the key business highlights.

Thank you, Saumen. Greetings to all. We had yet another good quarter with continued improvement witnessed across various business health and performance metrics. There has been significant growth in the free cash flow generation, and we now have much stronger balance sheet. On our quest to grow, diversify our business and become more efficient, we have seen good traction in new product launches in the U.S. and Europe markets and continued with the growth momentum in India and emerging markets. Let me take you through the key highlights across our businesses. Please note that all references to numbers in these sections are in the respective local currencies. The North America Generics revenue for the quarters are at $234 million, with a year-on-year decline of 1%. However, the business registered a growth of 10% over the sequential quarter, driven by continued ramp-up in gCopaxone sales and improved contribution from recent launches. The overall market environment has been relatively stable and with this base price erosion, consistent with past few quarters. We have been fairly busy with the uptick in the launch momentum of new products and till date have launched 10 products since the beginning of this fiscal. This includes multiple interesting products, like daptomycin, Vitamin K injection, Carboprost injection, OTC Guaifenesin, Pseudo, Ramelteon and the relaunch of Azathioprine, many of which have been either first to market or on limited competition space. We expect this launch momentum to continue in our network to bring more than 30 products to the market in FY 2020. As of now, we have around 115 commercial products in the U.S. markets. On the gNuvaring asset, we are actively awaiting the feedback from the USFDA around the approaching goal date in the coming weeks. While we have answered all the queries in our last general response, we expect to receive some additional queries. We will have better visibility on time lines once we hear back from the agency. The Europe business recorded sales of EUR 31 million with a year-on-year growth of 22% and a sequential quarter growth of 29%. The strong performance for the quarter was a result of improvement in supply situation and new product launches across markets. During the quarter, we launched 6 products in Germany, 4 in the U.K., 3 in France, 1 in Spain. We expect this business to continue to perform well during the year. The emerging markets business recorded sales of INR 730 crores with a year-on-year growth of 10% and a sequential quarterly growth of 4%. The Russia business grew by 5% year-on-year and 9% quarter-on-quarter in constant currency. The current quarter performance is in line with our expectations. As per our strategic growth plan, we are continuing to strengthen our product portfolio across the emerging markets and expect the current growth momentum to continue going forward. India business recorded sales of INR 696 crores with a year-on-year growth of 15% and a sequential quarter growth of 7% during the quarter. During the quarter, we launched 8 new brands. As per the secondary sales reported by IQVIA, we have registered strong year-to-year growth of 13%, ahead of the total market growth of 10.4% for the quarter ended June 2019. We believe that with our renewed focus on the whole market, we will continue to grow better than the overall markets. The PSAI business revenue are at $65 million, which has declined by 20% on a year-on-year basis and a sequential decline of 32%, partially impacted due to manufacturing issues, which is now being resolved. We expect that the business performance will improve from Q2 onwards. On the R&D front, we are progressing well in line with our expectations. While we have filed only 1 ANDA in this quarter, the filing run rate is expected to pick up during the balance of the year. As of the 30th of June, 2019, we had 107 cumulative filings, pending for approval with the USFDA, including 104 ANDAs and 3 NDAs. During the quarter, we filed 7 drug master files globally. On our Proprietary Products business, following the divestitures of our on-market derma brands to Encore Dermatology, we recently announced the divesture of our [ neuro bearing ] Zembrace and TOSYMRA to Upsher-Smith. The transaction value reflects the strong potential of these 2 brands, and we believe this partnership will help realize the full value for these assets. With this divestiture, we have only exited the front-end commercial business. We remain committed to developing products to address the unmet and under-met medical needs of part of our Proprietary Products business. Our focus going forward will be to leverage our core capabilities in R&D to build a self-sustained business model that consistently deliver high-value, globally relevant, differentiated products, providing meaningful health, economic outcomes to patients and payers. On the pipeline front, DFD-29, which is a low-dose minocycline, and XP23829, have both successfully completed Phase IIb studies with the data looking quite encouraging. The development on Eco-07 for CTCL indication is also on track. Consistent with these guiding principles, we will continue to further this agenda. On the quality front, I'm quite pleased with the outcome of the recent inspections, which has been the result of our focus and dedicated efforts to continuously improve our quality system. We will continue that effort of inviting highest-quality culture across the organization. As regards to CTO-VI, we had face-to-face meeting with USFDA. And based on this discussion with agency, we expect the reinspection will be conducted for the site. I'm pleased to inform that we also continue to progress well on our journey toward driving cost efficiency within CapEx investment and improvement in the business processes for a long-term sustainable growth. With this, I would like to open the floor for questions and answers.

[Operator Instructions] The first question is from the line of Neha Manpuria from JPMorgan.

My first question is on India. We have seen an improvement in the growth momentum outperforming the industry. How should we look at the growth trend over a medium term? What is our expectation of the India performance, let's say, over the next 2 years? Where do we see our India business?

India is a very important market for us. We indicated also in the past, Neha, that we are focusing on India, and we want to grow our ranking. So we should expect to see growth that is better than the overall market. Plus, we also -- if applicable, if we find the right deal, we will not be shy to do inorganic moves as well.

And Erez, how do you plan to improve the growth rate or maintain the growth momentum? If you could indicate a couple of actions that we are taking to probably further improve the growth?

It's a combination of improving the execution of the sales force. So we have -- and that's what we are doing. It's a search for the effectiveness and other commercial excellence activity, this is one step. And we are putting more investment in the brands that have a chance to be bigger. And the third is that we are launching -- as I mentioned, we already launched 8 and we are going to continue to do so. So we are ramping up and launching more products.

Understood. And my second question is on the margins. This is the second quarter where we're seeing certain provision for inventory. I think we saw some in the last quarter, too. What are these provisions related to? And should we expect more such provisions going forward?

We always build up inventory in anticipation for a product launch. So if there is considerable delay in that, there is more option left for providing for inventories which is closer to shelf life expiry.

So this is primarily for the U.S. in that case?

Mostly.

The next question is from the line of Surya Patra from PhillipCapital.

Again on the gross margin front, so although there is a kind of a decline -- sequential decline in the PSAI business, which is generally a low margin -- or low gross margin business. Despite that, we have seen a kind of sequential decline in the gross margin. So entire of this negative trend in the gross margin is because of the inventory adjustment?

No. Anyone can see the gross margin of Global Generics segment has actually improved. So it is a PSAI which has cooled down and then also this inventory provision that has also contributed.

Okay. So are you quantifying, sir, this inventory at the...

We are clarifying what is the gross margin of Global Generics segment, which is 57.6%; and PSAI is at 7.2%, which is -- although mix-wise, there is a benefit because Global generics as a percentage of overall Dr. Reddy's sales has improved. And then the remaining is attributable to write-off, providing cost for inventory.

And do you think this is a kind of sustaining fact for this year, or it is just a couple more quarters specific or anything on that front?

PSAI, as Erez has already alluded, we believe it was a Q1-specific issue. It should bounce back in Q2. So far as slow-moving inventory provision, it all depends if there is a further delay in anticipated new product launch, and we have to appropriate lead and take care of that.

Okay. On the second question on the PSAI business, sir. Say this -- the -- what was the impact that we are seeing? It is only because of the manufacturing or any pricing or any other issue that we are witnessing in the market?

It is primarily because of operational issues.

We have a healthy order book, which gives confidence of recovering in Q2 because we have a healthy order book.

Okay. And just on -- one more question on the NuvaRing side. So what could be the kind of a competitive scenario there, though it is -- as of now, it seems that okay, it is a limited competition, one. And you have already indicated that you have responded to the CRL that -- and you are hopeful about it. So any color on that front in terms of the time line that you are visualizing or on the competitive scenario there?

On the competitive scenario, we don't see any additional people that are coming beyond the one we know, so in that respect, I don't see a change. As of the timing, it depends on the queries, if and when they will come, then we will know the time lines to address those. We don't have any better indications than that at this stage.

The next question is from the line of Nimish Mehta from Research Delta Advisors.

Sir, a little bit more on the gross margin. So if you can just tell us what will be the gross margin had we had a normalized PSAI. I mean just so that we know what to model, that would be helpful. And second question is, about the launch of Vimovo, are we likely to launch [ Inatrex ]? What is the plan?

Well, first is PSAI, there could be fluctuations from quarter-to-quarter, so it is very difficult to tell you what could be a normal range. But if we perform well, then it should be better than 20%. It could be even 30% or -- it depends, which can fluctuate. So it is very difficult for me to tell any specific normal range.

But the PSAI margin should be taken as 20% to 30% normalized? I mean versus 7% that we are seeing right now? Is that a fair understanding?

I'm not giving you the range. It is -- if we look at the past data and draw a -- kind of a -- how that fluctuated over the [ pane ] then you can also get to your own conclusion. Otherwise our investor relation, they can send you the past graph of what has happened in different quarters. But yes, it will be safer to assume that kind of range.

Okay. Okay. So I mean just to put it in context, we had earlier said that the gross margin would hover between 53% to 56%, that is the root level.

Company -- again, if you look at the past data, and I said that time, there will be some exceptions in few quarters. But if you see the past data, you will see that it has fluctuated between this range in most of the quarters, if you take for the last several years multiple quarters. The fluctuation has been -- more than 80% to 85% of the data point will be in that range, for 53% to 56%. So that we will expect for a company level a normal kind of range.

Yes. At a company level, once we get back normalized sales in PSAI, 53% to 56% is a reasonable expectation? Is that a fair understanding?

It is fair. If the PSAI -- because 7.2% is pretty low, you can understand that. If this quarter the margin level would have been higher, then definitely overall company margin also would have come within that range.

And as for the Vimovo, your second part of the question, especially we have a very exciting positive outcome of -- in the court of appeals. As you know that we won the 2 patents. Now we are waiting for basically to get either denial or [ amends of those accusations ] of issuance of the mandate in the next coming weeks. Now once the mandate is issued, eventually we will evaluate the launch possibility. And it's an exciting product. We will not commit now what we will do, but we are very excited about this one.

Okay. Its [ Irish reason ] also would be helpful, if you can tell us about the possible outlook of the Vitamin K injection that you recently launched? And do you think REVLIMID as an opportunity is exciting now that you're accepted in Canada? I'm talking of the U.S. opportunities. Some color on both of these products will be extremely helpful.

So Vitamin K is a great product. That's what I can say about it, and we are very happy about it. We're not giving guidance for product. And as for the other one, it's -- we are proceeding in the legal aid case, and we believe that we have a nice story about it that also the [ innovator ] appreciates.

[ Innovator ] appreciates, okay. You're talking about the U.S. market, right?

Yes. Yes. There is no relation between the Canada process and the U.S. So these are separate processes.

The next question is from the line of Nitin Agarwal from IDFC Securities.

Sir, on the -- again, on the gross margin, a bit on the U.S. business, especially on the Global Generics business. If you had 3 or 4 quarters of 57.5% gross margins, where we used to be a much earlier -- a much higher margins earlier in the business. So given the new pricing dynamics in the market, is this the normalized level for this business? Or do you see opportunities to meaningfully increase it on a Global Generics segment going forward?

It depends on new products. And if there is a significant kind of a new product launch, then definitely during those quarters, there could be an improvement possible. Now similarly in a quarter, if there is no new product launch, it could be impacted because of -- it is very difficult -- the reason why we do not provide any kind of financial guidance is that it is unpredictable. We cannot give any specific kind of thing what it could be. This is what you see is the impact of all the price [ factors ] that have been happening over last few years.

Right. And sir, then on R&D, we still hold on to that $250 million to $300 million guidance for year? We had $50 million or so spend in this quarter?

Let me clarify. One thing we always say, we don't give any kind of financial guidance. So at the same time on a few of these, like CapEx or R&D or effective tax rate, what we provide is more of an indicated kind of thing which, if there is any change quarter-to-quarter, we can then accordingly inform all of you. At this point of time, there is no reason for me to believe that it will go out of this range. For the first quarter, it has been $52 million, but for the remaining 3 quarters, it could cumulatively come to the same. But if there is any change we expect, then in the Q2 earning call, we will talk about that.

And lastly, are there any more costs on the Proprietary business which are still there in this current quarter numbers, which will be probably reduced from the next quarter onwards?

So as you know that it is a commercial part of the business, which is actually closing down. And there are definitely some of the employee [ sort of unrelated ] things, which we'll have to factor in. So we will come back early next quarter onwards, you can see it a normalized level of Proprietary Products business, the cost aspects on that front. But we are going to continue to spend money on R&D for Proprietary Products, so that will be there. Only thing you are not going to see any sales, except for the royalty from Proprietary Products.

The next question is from the line of Abhishek Sharma from India Infoline.

Sir, just 2 questions, sir. You said on PSAI, essentially was sort of a manufacturing-related issue. Can you help us with more color on it? It must have been facility specific. So which facility was impacted?

So you are asking more granular details. There have been some hiccups in terms of committing to customer delivery and that has impacted the sale. As already Erez has alluded that those things have been resolved. And since we have a healthy order book, we expect the quarter 2 performance to get back to normal levels.

Okay. Just one bit on that. Was it product specific or was it site specific?

If you are related that should we have any site quality issues, the answer is no. These are related to product -- production specific.

Got it. And the other question is on strong free cash flow. Now the company continues to generate strong free cash flow. Last year was great. This quarter, again, has been great. So in terms of capital deployment, how are you thinking about it? What avenues are you exploring for that?

So this is something we discuss at length within management and along with the Board in terms of the total capital allocation. In the past, when we had surplus cash, we even went for a buyback arrangement. But if there isn't an organic growth opportunity, which is there, than that also is helpful in terms of the capital deployment. We have already alluded to that in terms of our total CapEx requirement, the need has come down, already having invested so much in the capacity. So -- and we have been continuing with the [ current ] consistent dividend policy. So this is something which we are discussing internally, maybe in terms of which specific part of the business where the capital allocation could be more incorporated than some other part of the business. Though that comes with some adjustments, which we will be doing, capital allocations.

We are absolutely planning to use our financial capacity for inorganic, once it will be material. We will not go crazy and will not pay something that we should not pay. And we mentioned it also in past meetings as well. But we feel very happy about our situation and it's going to be further improved. As for example, we already got some of the money for the Proprietary Products as well, of what -- which we'll recognize next quarter. So this will allow us now much more flexibility -- strategic flexibility, and naturally we will spend the money if we're going organic in the relevant spaces that we [ decline. ] So within to create additional value on the spaces that we are focusing on.

And just to close that out, where do you see opportunities in terms of inorganic? Is it more India emerging markets, U.S. or something else?

Actually, there are many, many assets that are out there plus many, many assets that will be out there. I think fortunately for us, we have a very good situation, especially in terms of balance sheet. I think that some of our colleagues in the market have much issues, and you know well about it, and I believe that more assets will come and -- in each one of the spaces. So what we want to make sure that we -- it's not just at the right value for investment but also that it will help us to create the right capabilities and the right synergy in each one of the spaces. Specifically, for India, we'd love to have in India in any one of the spaces.

The next question is from the line of Prakash Agarwal from Axis Capital.

Sir, the question on the -- just announced Mylan-Upjohn merger taking place, and we've also seen Aurobindo buying out large Sandoz assets in U.S. So how do we think about current environment? Is it like the large players consolidating and the pain points bottling out? Or do we still see the pain points coming ahead, and that's why they're getting -- merging, and that's why getting stronger to face the headwinds? How should we look at it?

I believe that each one of the cases is different. Sandoz is something that happened more than a year ago, and it is actually started more than I think 18 months ago, when it started. And in the rationale, of course, was the way Sandoz-Novartis wanted to conduct the Sandoz business at that time. I believe that the recent news of Mylan and Pfizer, it's coming from, of course, the perspective of these company in how they want to manage their generic assets. So I don't see any similarities. And actually, what we are going to see, I believe, is that assets will continue to flow out of there and people are finding solutions for the relevant challenges, especially for those that [ face ] the challenges. They will seek those solutions. We are on the -- I hope that we will find ourselves on the winning side because we can actually use those assets, if we -- it will be synergetic to our activities. So I see this overall as an opportunity.

By Dr. Reddy, as such, we are not looking for something as large in terms of acquisitions. We would be more so looking at something in the emerging market. Would that be correct understanding?

We are looking all over the place for the relevant opportunity, not necessarily in emerging markets.

Perfect. Great. And sir, second question on Suboxone. Since the last Q4 commentary, we made a comment that we are improving market share. Have we reached a fair share? Has the competition intensified there? And what is the outlook there?

I think that the main change was not so much about the fair share but rather that the uptick of Generic as a whole. It means that the substitutions from the innovator products to the Generics as a whole was relatively slow. I think that we're seeing...

50%.

I see that it's about 50% right now. So it means that there is more room for growth in that respect.

Sorry. I did not understand. 50% Generics are already there, you are saying?

No. No. No. Generic variations of these product is [ brand. ] So even now, the innovator brand is continuing to hold 50% of the...

[ Is that 50% then? ]

50% of the market share. At times to get Generic [ variations ]. All Generics company combined will have the remaining 50%.

Understood. And we would be at around 15%, 20%, sir?

We would be around 20% of the generic market, Prakash.

20%. Perfect. Great. And sir, last question Russian CIS. Last year, obviously on a low base, we saw a lot of launches, and we had a good base. So -- but particularly this quarter, the start has been slower. How should we see the full year?

We cannot give guidance, but as Erez had said that we are doing multiple -- we're taking multiple initiatives, including new product launch, improving the [ self-operativeness ]. So we hope to perform well in the Asian market.

Prakash, it's not that slow. For Russia, it's not that slow. I don't know what the others are doing in Russia, but if you see the IMS for the Russian market, you will see that it's not that slow.

The next question is from the line of Shyam Srinivasan from Goldman Sachs.

My first question is on Generic [ Valcade . ] I recollect we had a 505(b)(2). So is there any update on this particular filing?

So Shyam, so this -- on the generic product, the Generics have basically lost the [ case ] and will only be able to launch after the patent expiry. And for the 505(b)(2), the file is in -- under review with FDA. And as and when we hear from FDA, maybe at that point in time we can come to market. So as of now, we don't have any further updates. The filing is under review with FDA.

Amit, it's in the last few quarters or you think it's like next year kind of an opportunity, if it comes?

A little difficult to comment at this point in time because we haven't heard from FDA, and it is an [ whole ] filing to be [indiscernible] to go with that.

Okay. My second question is on REVLIMID. I think to another participant, I was not clear what was mentioned. Are we waiting now for the District Court process to complete, which is like early 2020 calendar year? Would that be the current status update on the REVLIMID?

We are in the -- we are in the legal process, I don't know about the dates. It's hard to predict dates of legal proceedings. But we are in the legal proceedings.

[indiscernible]

Okay. Sure. My last question is on SG&A. I think we have seen like significant progress on this, 31% fiscal in the current quarter. Historical levels at 5%, 15%, 16%, maybe lower. Do you think there is more room for the cost rationalization program to kind of cut costs further?

Yes. There is room.

Saumen, any sense? Is it -- where are these -- what are these areas? Because we have done a lot of work. What are the other pending kind of levers that you think we can actually bring down?

See, even if -- whatever we do it, all the things doesn't accrue straightaway. It accrues over a period of time. And second thing, there is always scope to improve productivity beyond what we have today. And that depends on technology. That depends on specific interventions. So we are going to focus on it. This is a journey, which we have undertaken with utmost seriousness, and we want to be more efficient.

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

Any updated thoughts on increasing the scale of operations in China? Specific, 70 products that you thought is something that you can take to that market?

Yes. So we are on track with that. We increased the theme that is dealing with the development. And as we are doing to some of the products, we are doing studies in China, and especially bio studies. And we also -- a project of [ expansion ] of the capacity of the plant that we have in Guangzhou. So we recently updated the management over there and sent a new Head of China. So we are ramping up. And I'm very happy with the progress that we have in China.

Great. So Erez, what's roughly the time that it takes to do the bio studies and all the work that's required and do the filing? And second, from filing to approval. So if you can just help us with that?

It's a bio study. It's a process including the stability, et cetera, let's say, around 1 year. And the -- and that's related to filings to approval, depends on the -- whether the product can [ meet GA] or not because they can do it very, very fast. But let's, say between 1 year or 2, 18 months, we'd say, this is the timing.

18 months, you are saying, from now to getting to the market, or just the approval part?

From filing to approval. That's what you asked.

Yes. That's correct. Okay. Okay. So basically it is safe to say it is about 2-year plus, 2 to 3 years before we start to see the real money come in? Is that a fair assessment?

It depends what you call real money. We are growing at double digit as we speak. And this is pretty real. But yes, we will see this [ further ] by much bigger money. Yes. That's what we are planning to have.

Okay. Great. And then onto pricing products for the 3 drugs which are right now in the clinical development. Would you want to take them fully to the market and commercialize? Or do you think at some point in time, you'll be looking to monetize as we have done with these 5 other products?

We'll probably monetize them as well.

Okay. In effect, over some -- over a time period, you will be completely exiting the specialty business?

No. We are not exiting. Let's clarify that. That's important. What we saw that we do not -- that we do have an advantage on the development and clinical development of this kind of products. And we want to continue to leverage that because this is a proven capability that we have. What we saw that we do not have a front-end, even lost money is on the commercialization, the retailing in United States. That part, we lost money. So we are exciting the commercial -- the commercialization of the direct commercialization of that product, but we did not exit Specialty. We believe that we can make more money by monetizing this product than by selling it ourselves, at least for the next coming years. So we are not exiting Specialty. That's very important clarification.

Also, we explained earlier, it is very difficult to synchronize the number of products, which will get launched in a specific sales force you build up. So if you have only one product to promote, then you cannot recall the total sales force expense. So considering all these things, we thought it is prudent that if people have the scale and the capability, they can do much better with the product that we develop and get on a royalty model.

Plus, in the markets that we do have the access, we will absolutely take them commercially. And the way we see Speciality, we see it more as a global business than an American business. And in places like India and Russia, for example, we are actually actively working. These are the names that you saw, but we have additional Proprietary Products for these countries.

The next question is from the line of [ Harith Elavu ] from Tax & Consultants.

This is regarding this net finance income you have shown during this quarter of around INR 39 crores. And out of which suddenly it has come sale of investment, profit sale of investment, INR 20 crores, so is it because of that? Is it regular phenomena for selling of assets and earning profits, or is it just a one-off case?

No. These must be referring to the mutual fund investment. Normally we -- whatever we have in the surplus cash, instead of keeping in the fixed deposit, which will give very low return, we do on a -- based on the credit [ rating ] and separate fund kind of analysis. So when you redeem them, then that leads to the profit on sale of investment. Earlier, there was a different accounting standard where immediately it could have probably begun to balance it and later on to P&L. Now it is impacting directly with the current accounting standard.

Okay, Sir. I agree. But you have shown it in all the quarters, even including in last year corresponding quarter also. This was income and sequential quarter, also this is shown as income. So every quarter, you are having finance income that way, is it...

If we have money, we will -- if we are investing in that, then whenever we redeem, we will generate profit on that investment. So that will come on [ that quarters.]

I think this is a good decision for investing money there. Another thing is where it is shown in the Indian accounting standard. In Indian accounting, the finance cost it is shown. But this income is included, is it in other income or elsewhere?

Part of the finance income.

Part of the finance income.

No, sir. In your statement -- this consolidated statement you have shown, this is the expense. This is not a net income.

There are 2 things. One is we have some loans and whatever loan we have taken, there we see into it but that will be an interest cost. And wherever we make investments, in [ there we own ], that we will improve what we [ own ]. So lately if we have more investment than what we're spending on loans, [ then it comes ]. I thought specifically if you would have spent a lot of money on inorganic growth, then you will find it is more of a net interest expense rather than an interest income.

Okay. I'm not able to comprehend this thing because in the consolidated statement you were showing finance cost of $298 million and then $247 million, something like that, which is actual interest cost, not income.

[ Harith ], you may get in touch with the Investor Relations team. We will clarify you off-line whatever you want to understand on the -- [indiscernible] you can go ahead.

The next question is from the line of Charulata Gaidhani from Dalal & Broacha.

My first question pertains to the ANDA filings of the 34 first-to-file opportunities. What would be the addressable size and how many would be -- how many approvals would you expect in this year?

So I mentioned before, we are planning to launch 30-plus products this year. Some of them are the first-to-file. I don't know the exact number.

Okay. And my second question pertains to Russia. What is the normalized growth that you expect for Russian market?

As I told you earlier, we do not give any financial guidance. So we can only tell you that we are set to grow. By how much, we will not be able to quantify and give the guidance.

We have the last question in queue from the line of Surya Patra from PhillipCapital.

Sir, if you can give some clarity on your progress in the biosimilar side for the advance market. That is one. And second, I just wanted to have a clarity, this $70 million, the disposal receipt up front, whether you have factored this quarter or whether it will be factored in the subsequent quarter?

The second question I will take first. It will be in subsequent quarter because that deal got closed in July after the PSAI approval. And also we have received cash. It will be in Q2. It was not in Q1. Then the first question.

On the biologics, we are on track with Rituximab studies. So this is on track. We have the patients coming up and filing up for the study. So everything is on time, on track, on budget at this point.

Sorry. I missed the product name, sir?

Rituximab.

Okay. Rituximab. Okay. Yes. Any other product that is in the advanced stage or development?

For the United States, what we have published, we did not disclose the names of the others, but we are working on multiple others, [ just a name ].

Thank you. That was the last question. I now hand the conference over to the management for their closing comments. Thank you. That was the last question. I hand the conference over to Mr. Amit Agarwal for his closing comments.

Thank you, everyone, for joining us today for the earnings call. In case of any further queries, please reach out to the Investor Relations team. Thank you.

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