Dr. Reddy's Laboratories Limited (RDY) Q2 2023 Earnings Report, Transcript and Summary

Ladies and gentlemen, good day, and welcome to Q2 FY '23 Earnings Conference Call of Dr. Reddy's Laboratories Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. [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.

Thank you. A 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 September 30, 2022. Earlier during the day, we have released our results and the same are also posted on our website. This call is being recorded, and the playback and transcript shall be made available on our website soon. All the discussion 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 operative comprising Mr. Erez Israeli, our CEO; Mr. Parag Agarwal, our CFO; and the Investor Relations team. Please note that today's call is a copyrighted material of Dr. Redis and cannot be rebroadcasted or attributed in press or media outlets without the company's express written consent. Before I proceed with the call, I would like to remind everyone that the safe harbor contained in today's press release also pertains to this conference call. Now, I hand over the call to Mr. Parag Agarwal, over to you, sir.

Thank you, Amit, and greetings to everyone for the current festive season. This quarter, we had strong financial performance with higher server sales, PBT and EBITDA in our quarter. The performance has been supported by the launch of lenalidomide capsules in the U.S. and rebound of Russia performance over last quarter. Let me take you through the details for the quarter. For this section, all the amounts are translated into U.S. dollar at a continuous translation rate of INR81.37, which is the rate as of September 30, 2022. Consolidated revenue for the quarter stood at INR6,306 crores, that is US$775 million and grew by 9% year-on-year basis and by 21% on a sequential quarter basis. In the same quarter of last year, we had high coverage product sales, adjusted for which we have grown in high teens in this quarter. Consolidated gross profit margin for this quarter stood at 69.1%, an increase of 55 basis points over previous year and 920 basis points sequentially. The gross margins were mainly aided by favorable product mix and production linked incentive recognition. However, it was partially offset by a provision made on COVID product inventory as the sales on these products have reduced significantly. Gross margin for the global generics and PSAI businesses were at 65.4% and 3.6%, respectively, for the quarter. PSAI gross margins were primarily impacted due to inventory provision on COVID products and adverse leverage on manufacturing overhead on a lower sales base. We expect it to improve in the coming quarters. The SG&A spend for the quarter is INR1,656 crores, that is US$204 million, an increase of 4% year-on-year and 7% quarter-on-quarter, which is in line with business growth. As a percentage of sales, our SG&A has been at 26.3%, which is lower by 140 basis points year-on-year and 340 basis points sequentially. The R&D spend for the quarter is INR487 crores, that is US$60 million and is at 7.7% of sales. We have been making good progress on our R&D pipeline in line with our business strategy. Further, while we continue to drive productivity, we have been investing it back to strengthen our development pipeline, building marketing capability and digitalization. The net finance expense for the quarter is INR16 crores, that is US$2 million. We have been able to manage well the risk arising from the ForEx fluctuations in the current volatile environment. The EBITDA for the quarter is INR1,932 crores, that is US$37 million, and the EBITDA margin was strong at 30.6%. Our profit before tax stood at INR1,611 crores. That is US$198 million, which is a growth of 27% year-on-year and a growth of 10% quarter-on-quarter. Effective tax rate for the quarter has been at 30.9% due to the FX effects arising from jurisdictional rates. We expect our normal ETR to be in the range of 25% to 26%. Profit after tax for the quarter stood at INR1,113 crores, that is US$137 million. Reported EPS for the quarter is INR66.89. Operating working capital increased by INR322 crores, which is US$40 million against that on June 30, 2022. Our working capital base is due by 15 days due to optimization of inventory across our businesses and factoring of receivables in Russia. Our capital investment during the quarter stood at INR251 crores, which is US$31 million. The free cash flow during this quarter was INR580 crores, which is $71 million. Consequently, we now have a net cash surplus of INR1,373 crores in that is US$159 million as on September 30, 2022. Foreign currency cash flow hedges in the form of derivatives to the U.S. dollar are approximately US$402 million, largely held around the range of INR78.8 to 81.7% to the dollar maturing in the next 12 months, 4,320 million at the rate of INR0.99 2.4 million at a rate of AD56.04 and South African brand $67 million at the rate of INR4.82 to South Africa and maturing in the next 6 months. With this, I now request Iris to take you through the key business highlights.

Thank you, Parag. Good morning, and good evening to everyone. I hope you and your large ones are keeping welcome. I am pleased to take you through the current quarter performance, which is marked by record sales, EBITDA and ROCE. In the last few years, we have built a well-diversified business model, which allows us to have multiple growth drivers and reduce the risk of being dependent on a sign market or event. We believe that the current environment of geopolitical and economic uncertainties, inflationary pressure or and ForEx volatility here, our strategy is allowing us to grow. While there may be some fluctuation quarter-on-quarter, we focus on building portfolio pipeline across markets, driving productivity, investing for innovation and taking forward our ESG agenda. We believe that our strategy, along with a net cash position will enable us to drive sustainable growth in line with our aspirations. Let me share you some of the key highlights of the current quarter. One successful commercialization of volume limited launch of [indiscernible] capsuled in the U.S. market. rebound of Russia sales after this went to re-channel stock normalization in last quarter. US FDA approval of [indiscernible] received by our partner, improving visibility and commercialization of our products. Our largest manufacturing facility in Hyderabad internally referred as FTI, a joined Global Lighthouse network for the economic call. Now let me take you through the key business highlights for the current quarter. Please note that all references to the numbers in this section are in respective local currencies. Our North America Generics business recorded sales of $351 million for the quarter, with a strong growth of 38% year-over-year and 53% on a sequential basis. This was largely attributed to the new product launch contribution including the volume limited launch of lenalidomide capsules in the in the U.S. market. While we wouldn't be able to mention specific sales volume or value arising from [indiscernible], we expect these products will continue to contribute meaningfully over the next few quarters as well. The price erosion for the base business has been within the moment transcend over the last 3 quarters -- in this quarter, we launched 7 products and expect us momentum to continue during the balance of the. Our Europe business recorded sales of $52 million this quarter with a year-to-year growth of 10% and sequential quarter growth of 4%. During the quarter, we launched 10 new products across various countries within Europe. We expect to continue with the growth momentum in the rest of FY '22. Our emerging market business recorded sales of INR1,225 crores with a year-on-year decline of 6%. However, a sequential growth a quarter growth of 6%. The year-to-date decline was due to a higher base effect as we had COVID product sales in Q2 of FY '22. Adjusted for this COVID contribution, we have grown -- within the emerging market segment, the Russia business declined by 2% on a year-over-year basis and grew by 84% on a quarter-to-quarter basis in constant currency. The sales for Russia has reverted to normal levels after the channel inventory stocking and normalized in the last quarter. During the quarter, we launched 31 new products across various countries of emerging markets. We expect this business to continue for the growth momentum in B. Our India business recorded INR1,150 crores with a year growth of 1% and a sequential decline of 14%. Adjusted for the covid product sales during Q2 FY '22, and the brand divestment income in Q1 of FY '20, we have grown in mid-teens year-over-year and mid-single digits sequentially. During the quarter, we launched 2 new products in a market. As per a tube report of June 2022, our MAT rank in value terms is at number 10. We will continue to reset our portfolio in India business with focus of growing big brand acquisitions, partnerships for focus therapy, while divesting noncore brands. Our PCI business recorded sales of $81 million with year-over-year decline of 29% and sequential decline of 12%. Adjusted for the COVID product sales in Q2 of FY '22, the business has declined in single digits over last year. The decline has been due to lower volume pickup by customers for some of the key products. We expect sales improvement over the next couple of quarters with increasing volume pick up and launch of new products. We have been progressing well in our journey of building a portfolio of complex and differentiated products, biosimilar and NC pipeline. We have also made a good progress to identify a list of innovation moves to our branded markets. We continue to actively look for investment opportunities for businesses in line with our strategy. We believe that even in the current uncertain environment, there are multiple opportunities to grow our business, and we are committed to pursue this in line with our strategy. With this, I would like to open the floor for questions and answers.

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] We have our first question from the line of Tarang Agarwal from Old Bridge Capital.

Three questions from my side. The first question is on Lenalidomide. Just wanted to get a sense that where the volumes bunched in the current quarter as per the agreement with the innovator? Or should we expect the volumes committed by Dr. Reddy’s [ph] in the current quarter to probably continue as we proceed. So that's number one. Number two, if I look at the cash flow statement for the business, there's roughly about INR600 crores that's been spent on intangibles. So I wanted to understand what is the nature of this? Is it a purchase of ANDAs or something else? And the third question is on the PSAI business. I believe the gross margins for this business have been declining continuously over the last 1 year, and they came to a low of about 3.5% this quarter. So if you could just explain what's happening there? Is this supposed to move up going forward? Or how should we look at it? And what is driving this decline, not specifically for this quarter, but over the last 3, 4 quarters?

Thank you. I will take the first and the third, and Parag will take the second question. On the first, it's absolutely within the scope of the settlement we had with the innovator.

Ladies and gentlemen, we've lost the connection of request you to stay connected. Yes, please go ahead.

Yes. Do me now, sir?

Were there...

Yes, if I'm -- I couldn't...

Our line growth, sorry. So on the first question on Milan. -- the quantities are within the scope of the agreement that we had with the innovator, and we will continue to sell the product also in the next coming quarters. On the third question, indeed, the volumes of the API, the volume of the APIs, especially on some of the oil products went down. And this is the main reason of also the gross margin. This is a very much a fixed cost type of an industry. So what we see that likely the die will go up. And naturally, with that also the margins will go up. Now over time, strategically, we see growth lever in the PCI in general in all 4 levers. One is the data itself, primarily driven by certain launches of [indiscernible] in which we will sell commercial quantities for launches that will happen this year, next year and day after for those that are, including e-mails. The second is that our IMMO business, CDMO business, ATS, which is also a problem under this segment is going to grow, and we do see better traction in that direction. And number three, our activities that what we call the indirect business-to-business sales, especially in the Middle East Asia and Japan. We also see a likelihood of increase. And that was not least, we do have certain pending deals with the organizations like the Gates organization that are supporting mid- and low tiers in terms of economic countries, and we have some interesting projects ahead. So overall, we can guide that we believe that for these segments will grow also in the future. a, maybe the second question.

Yes. Saran, the second question, I will take the -- in the cash flow, the intangible amount that you see is towards the acquisitions that we have announced publicly also in the last couple of quarters. This includes Sigma from Novartis, also the Eaton portfolio under development and lower small acquisition to pay back. So it's basically towards the acquisition.

Thank you.

We have our next question from the line of Prakash Agarwal from Axis Capital. Please go ahead with your question.

Yes.

We are not able to hear you. Your voice is breaking, sir.

Am I horrible now?

Yes, please go ahead.

Call quality is not great.

Yes. Please go ahead.

Yes. So pardon if I'm asking this again, but 2 questions. One is, how should we think about the base business performance given there is some competition in your key products? Would it be largely flattish or it would have come down? And secondly, on the volume restricted launch that you have done, most or all of it is already booked for the...

I'm sorry, your voice is breaking again.

I'll repeat my question.

Yes. Parag, I think you have heard the question.

Okay. So what is the performance on the base business in the U.S. side, how it would have been done? Is it flattish or it would have declined? And second is on the volume restricted launch that you have done for generic Revlimid, most of it is booked or there is more to be booked in the financial year '23?

So on the second one, we are going to book sales for this product in Q2 and Q4 and in the years to come. And so we -- so it's not that it's a onetime. We are planning to continue to sell this product in a meaningful manner also in the next coming quarters. As for the first question, I would -- the best way to discuss it is we are very consistent, meaning that even if you -- on the long-term basis, and that's something we are very trying to be very considerate our communication, our U.S. market, our U.S. activities will grow is growing in the single digits on a month year basis while from time to time, we have mix ups and leaks down in accordance to the competition. This quarter, indeed, we had competitions for some key products like [indiscernible]. And against that, we launched product and we're going to launch 25 products. Overall, our U.S. market will continue to grow in the same manner that we discussed in the past. And we will have from time to time products that will contribute more meaningfully for a certain period of time. So the answer for that is we are consistently what we discussed in the previous meeting as well.

Okay. And just to think that I understood the second part of the question correctly, you said there is more to come in Q3 and Q4 with respect to Revlimid.

We have a next question from the line of Kunal Dhamesha from Macquarie Capital.

First one on the gross margin. So we have kind of improved gross margin by 550 bps. Can you just quantify various moving pieces here? I think we have product mix, PLI approval, FX impact and then offsetting is the total product provision and the price erosion.

Yes, Kunal. So our gross margin for the quarter, we have reported at 59%, and it has -- as I stated, it is strong because of favorable product mix. including the impact of new product launches. So that's clearly something that's pushing it upward. We have also recognized the benefit of PLI and a few other normal export incentives like DVD, etcetera, during the quarter. We have also taken a provision of around INR100 crores for covet product inventory as the sales have come down quite a bit, as you would know. So overall -- and there is, of course, a little bit of cost inflation that sitting in these numbers. There is some softening we are seeing in installments, which could have some favorable impact in the second half, but cost still remain at an animated level. So overall, I would say that, yes, this is what the gross margin is there about. I would just point out that we you need to take out the impact of new product launches during the quarter. our gross margin is within the normal range that we have been consistently talking about, which is somewhere between 5% to 54%.

And would you be able to share some insight in terms of why our ANDA filing run rate remains low. I think in FY '20, we filed around 8 NDS FY '21 was slightly better at '20 and then FY '22. If I look at this year's run rate first half is around 4 NDS filing while our R&D continues to remain at hates. So any insight into why our E&D run rate filing is low?

Yes, it's more of a timing within the year of the submission. Normally, most of the submissions are done in the second half of the year. So you are going to pick up of those numbers. As for the overall numbers, we are focusing our R&D as much as Patagonia for that on the biosimilars on products that we have bigger potential. So it's -- so we are trying to target not 40 products per year, but rather maybe lower number of the debt around the 2025 products per year, but those products with the potential to be first to market, meaningful growth, etcetera. So what you see here is also a combination of timing as well as focus on the R&D across markets, not just for the U.S. market. The products that we have developed in the U.S. market, we are also launching in other markets, especially in injectables. So they like -- actually the value that can derive from the R&D should be higher in the future while those relevant products will be launched in the near future, being global, more complex, more injectable non-biologics [ph].

We have our next question from the line of Damayanti Kerai from HSBC.

My question is on India fees. So even after adjusting for COVID base and sale of some noncore brands for the quarter, sequential growth rate is around mid-single digits, which is lower than market growth of double digit. So how should we see growth moving ahead? And what will be the key drivers? So a few years back, you mentioned about growing your India sales by almost 50% on the base existing at that time. So are you broadly on track to achieve that?

Yes, we are on-track. We are very confident that we are on track. What we see now is a combination. First, we are long focus. So as part of our strategy and as discussed in previous meetings, we identified certain segments that we want to focus on. And for those focus to put our resources behind meaningful brands that can grow and sustain for many years as well as investing in what we call Horizon 2, which India is going to be a big outlet for that. As part of this, we are divesting brands as well as focusing on brains. For example, the brand that we acquired recently as well as [indiscernible], the vascular and more chronic in nature. We do have some brands that if not do well, and we are fixing those. And I'm very confident that this will happen as well. So bottom line, I'm very confident that we are going to see it very solid and we are reiterating that are going to be a profile in India, and we are planning to achieve that.

Sure. My second question is on injectables. So this has been one of your focus segment. So can you talk a bit about the competition outlook for this segment, given we have seen like competition rising in this segment. So how do you see competition scenario building up in injectables over the next few years?

As the patent please, we invite people to invest behind products that we have patent exploration in this time. And naturally, as part of the way portfolio was built by the nares, there are more and more investable that will be coming this potencies; many actually -- many companies have injectable pipeline and exactly to increase in the future. So we do see the injectable business is very competitive. We see two advantages and differences in the injectable business that are different, maybe those that used to be in over-alert channel is different. It's selling to hospital. It's selling globally. We can use one and around the world, and we're going need to do a bio study continent. So the gross margins are higher and some of these products, the technological bar is also higher. So given all of this, we believe that we will see more growth to achieve better margins on a global scheme. At the same time, every product will face competition and where competition will come, it will be us first, I say, any other segments or generic segments, this is likely to be also for index.

Sure. And my last question is a clarification on PLI scheme benefit. Is it one-off you are likely to book it every year or like in next quarters also?

This is clearly not a one-off. This is seen that, as you know, it's a multiyear scheme. And even within this year, it is not a one-off. Of course, the quantum fluctuate from one quarter to another, depending on the sales of the products that qualify for the rise.

We have a next question from the line of Surya Patra from Philip Capital.

Yes. My first question is on the cash flow that we are likely to be generating from Red Limit. So in fact, Dr. D has been a kind of a consistent generator of free cash flow, over INR1,000 crores kind of annually. And this evolute way that contribution that we are witnessing it is obviously over INR1,000 crore kind of a per annum contribution that we are definitely likely to see -- so given that your qualitative growth outlook, if you can give some utilizing this cash flow situation. So obviously, your growth can be qualitative and consistent over next few years. So can you give some clarity about what would be your key priorities here going ahead, looking at the kind of strong cash flow generation situation?

Yes, thank you. Indeed, I agree with you, we are building a very healthy cash flow position and which exactly to get to over the -- so the cat naturally post the basic to use it for CapEx to use it for buying and building the future of technologies and to use it for our working capital. We will naturally have excess of that. The second is to build development. We are actively looking for deals across all of the geographies that twist our strategy, both on Horizon 1 as well as Horizon Go. We feel also that the geopolitical situation as well as the economy situation creates an opportunity for us. In that place, we do see opportunities that maybe in the past were in higher valuations. And so, likely that we are going to be very busy with this development in the next coming quarters. And if since we left, we will consider, of course, out of this is maybe for the shareholders. We do not -- we did not take a decision about this kind of stuff, like buyback or dividends. But what we can assure that we will have a use for the money, the money will be used in that order of priorities.

Sure. So in fact, whether it's like even the R&D, although there is a kind of significant growth that we are witnessing from Revlimid. But accordingly, the R&D spend has also gone up. That was earlier indicated that way. So you think with the kind of a ramp-up in the business, the R&D spend and the investment on the specialty project, all that is likely to go up quite meaningfully.

That's why if you recall in the past, we guided that we are comfortable with 25% EBITDA, which in one -- in some quarters, we'll do more, some quarters will do less this quarter. And maybe also in other quarters, we'll do more. So absolutely, this is the idea that this will help us to pay for the R&D for the Origin OpEx activities, knowing our pipelines and knowing the cash position, that's why we felt very comfortable to commit in June that we can finance Horizon 2, while including the R&D associated with the including the R&D associated with the resin one, while speaking the overall guidance of EBITDA of 25% on a multi basis. And yes, we believe that we are in a very comfortable position to do both organic and inorganic, not just because of this product also from loans of other products and other activities that we will do in the next coming years.

Sure, sir. My second question is on the preclaim for the biosimilar. How should we see this as an opportunity for us because our partner fashions Kai has already got the USFDA approval for that. So how influenced or this product opportunity would be for us. My only key query here is that what is the kind of association that we are having here because it has been filed in the name of net. The manufacturing base is also used from freshers base only. So then what is the kind of relation that we are having for this opportunity?

Yes. This is a residual agreement that we had in the past, activities with milk, the German nurse that was acquired by Fresenius. And so the product was developed by us initially and a second before. And so we are entitled to royalties, meaningful royalties start of the launch. Like you said, rightly so, we are not participating in the actual production, but we will share the success once we sell the product.

Okay, sure. Sir, just one clarification. You mentioned about the INR100 crore provision. Is it relating to the PSI and this INR193 crores of government grant that is what is the PLI amount, these 2 clarifications.

Yes. So the amount of government grants includes PLI and the other export incentives that we received. So it's a total amount. Sorry, what was your first question?

On INR100 crores provision, is it relating to the PSI?

Yes, it is across all businesses. It is for India as well as CSI and also in emerging markets. So it's an aggregate provision across all geographies.

But is it possible to share for PSA?

We don't share business specific numbers.

Because this is a quarter-specific one.

Let's say that without the cover the gross margin of the API will absolutely grow...

High single digits. I would put it as high single digits yes. So without adjusted for profit provision, the gross margin for PSAI would have been high single digit.

We have a next question from the line of Rebecca [ph] from Bloomberg. Rebecca, can you please go ahead with your question. There is no response. We move on to our next question from the line of Bino Pathiparampil [ph] from InCred Capital.

Hi. Good evening. Just a couple of questions. Just a follow-up on this INR193 crore government brands. What people does it belong to? Is it just this quarter? Or is it related to products sold over the last few quarters?

It is part of the production linked incentive scheme that the government of India has closed. There are certain products that qualify under the scheme. And this incentive pertains to the sales that have been made in the first half of the year; the thing started from this fiscal year.

Understood. Second, your tax rate is a bit high for the quarter. So has it got something to do with the higher remit profits in the U.S.? Is it going to be a higher tax rate whenever there is higher contribution from [indiscernible] profits?

As I said, because of the jurisdictional mix, as you know, we are a global company operating in multiple countries. And the sales of various products are booked in various geographies, depending on where the IP resides and where the value is created. So it's entirely driven by the jurisdictional mix, and it includes some impact of new product launches, including Lenalidomide.

Got it. And finally, you had guided to BLA for 777 in this year in this current year. Are you on track for that?

Your voice is not clear. I'm -- can you repeat the question?

Sorry, the BLA for 777 year-on-year product, you had guidance for 2022. Is that on track?

Yes. It has been filed by our partner.

That's already filed.

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

Great quarter. Parag, can you just share what was the core EBITDA margins to exclude those one-offs, I mean, versus your 25% ballpark target that you had?

Sameer, first of all, I would not classify this as a cost. I think the entire business -- the results we have reported are core because any new product launch is part of the core, right? I think there are a few moving parts, which I talked about, but let me just list them down again. We clearly have an upside because of new product launches, of which the generic version of Revlimid is obviously a significant component. It has been a successful high-value launch. There is a core inventory provision that we have made. We have recognized the government grant of INR193 crores as we have disclosed. Overall, there is some impact of cost inflation, but I think we have had good cost control. So overall, I would say that our EBITDA margin of 30% is core. Having said that, I must clarify that what we have been stating very consistently is that we are targeting our aspiration is to deliver 25% EBITDA margin on a sustainable basis in the near to medium term, and we remain on track for that target. There will be quarters when you will see higher EBITDA. There will be quarters where we will see lower EBITDA, but we are on track to delivering our aspiration.

Yes. Thanks, Parag. And just that when I did those adjustments based on whatever information that you have shared, it looked like it was more like 20%, 21%. So I get your point, it's -- you want to include everything in the business. But if you were to just see what it was prelaunch and now, it seems to be a little on the lower side and hence the question. So -- but that's fine.

I believe this same with the numbers are higher than this.

Okay, that's fine. Yes, that's great. And also on the working capital side, prices seems to be INR700 crores negative working capital, if I look at receivables and payables. So can you just talk about that? So INR400 crores and INR300 crores, I think, are the 2 move points.

So that movement would be because of the receivables because of the higher sales. If you see in this quarter, our sales have crossed INR6,000 crores, and there is a certain credit period. So that's the impact this is reflecting. It’s largely coming from the U.S., and that reason it's a little higher.

That's right.

And payables, INR300 crores, it has gone down?

Operation payment.

So there are certain payments that we have made to our partners. It's not really something which is bringing the table down permanent just a timing issue.

Okay. And just with your permission, my last question. If you look out next 4 to 6 quarters, anything that you want to highlight in terms of high value or complex launches for the U.S. market?

I believe that you'll continue to see store performance.

Okay. And then you say that you mean with the current basket, you think there'll be more new launches that's going to add on top of this?

Yes, absolutely. We will launch more products in the U.S. in the second half as well as in the FY '20.

We have our next question from the line of Prakash Agarwal from Axis Capital.

Yes. Am I audible? Just a follow-up to my first question asked. So you mentioned there is more to come in Q3 and Q4. question also was in terms of quantum, have you booked a large amount or expecting qualitatively, if you can comment that it would be similar or less sir?

We cannot give the numbers, but it's going to be meaningful numbers.

Okay, that is helpful. And to understand this further, I understand NATCO is going to come back in March with double-digit volume share. So this calendar year or this was fiscal year, that is the volume restricted for everybody? Or at least you can comment for yourself?

We cannot comment on our sales. our agreement is naturally until 2026, so there is 13 shares that we're doing. We do not want to share if this is a par settlement with the innovator. But like we said before, we believe that the quantities and the value can be meaningful also for the coming quarters included net...

Fair enough. So just completing the loop here, what I understand is you started in September, you have volume restriction until March. And then there is another increment that happens post March? Is that right understanding? Or is it post September?

I can mention, I cannot specify any details about the settlement. We have one in September, in October, in November and December and in market.

Okay. Fair enough. Okay, that's all from my side.

We have a next question from the line of Bino Pathiparampil [ph] from InCred Capital.

Just a couple of follow-on questions regarding products in the U.S. again. You have a filing for Lexis TAM. I believe there is some litigations going on. Could you give us a later status update? Or do you expect to launch it anytime soon, say, maybe in the next 6, 12, 18 months?

No, no. I did not pick up the question. Can you repeat?

Generic version of [indiscernible] you have a filing in the U.S. for that, which is -- do you have an update or do you expect to launch it in the near future?

Yes, I think it is -- we have a settlement on that. So as for the settled main terms, we will have launched in the future. Obviously, the settlement terms are confidential, so we cannot discuss launch timings currently.

Understood. Second, there was a guidance regarding Rituxan filing in 2023 in the U.S. Is the arrangement with Fresenius, the same in case of Rituxan, the famous Neulasta [ph]? Or do you have a role in there?

The difference is that in this case, we will make the products, and they will market our products. That will be maintain like the and that will be made by them; this is the main difference.

Okay. And are you on track to file that in 2023?

We are on it.

[Operator Instructions] We have our next question from the line of Kunal Dhamesha from Macquarie.

So would you be able to quantify your investment in terms of R&D as well as CapEx for the first half of this year between Horizon 1 and Horizon 2 drivers for our business.

So Horizon 2, as I have clarified, I think when we had the Investor Day communication, we expect to invest about 50 to 100 basis points of sales in Horizon 2 through our P&L, and we are within that range. At this stage, we are not investing significantly in CapEx Horizon 2.

And then what would be our CapEx for this quarter of around INR250 crores would be for?

The CapEx in this quarter, let me step back. The CapEx for the full year is likely to be around INR1,500 crores in that range. And a lot of this CapEx is towards building capacity for our biosimilars business and for our injectable business.

Okay. Typically, a similar point, what would be the typical cost if you can share or injectable plan?

Yes. I think it varies -- it depends on the product, the complexity and the current utilization of our current plans, sometimes it's a top of CapEx, sometimes it's higher. So, I don't think it is possible to give a general answer to that. And when we say CapEx, obviously, it is not all going into building new plants. So there will be several additions to the existing plant, there will be maintenance cap that will be capped on digitalization projects from R&D facility. So it is all put together. So -- and towards the plan, Para already clarified those are the 2 tires.

We have our next question from the line of Surya Patra from Philip Capital.

Yes. Just two questions, sir. On the Revlimid, again, please. So do you think there is another wave of generic launches before 26th of January in January 2026.

Likely that more people will get approval -- not know exactly when and what is the initial settlement, but likely that before 26 will be additional companies [indiscernible].

Okay. My second question is on the -- let's say, the -- basically, India business, two aspects that I would like to cover. One is the OTC. And second is the -- your initiative on the digital kind of effort. So particularly on the OTC side, you have been one of the established in the OTC space of U.S. and Russia since long. And now you have been trying to build a kind of a similar kind of presence in the domestic market, in line with your enhanced focus for the domestic business. So what is your thought process there? And what you are trying to achieve there in the domestic OTC space? And in terms of profitability, how is it different from the existing ethical business in the domestic market. That is one aspect. Second aspect is that the spend that we have been making on the digital initiative front, in the domestic side since last few quarters. So how is that -- what is the progress there? And what is the benefit that we are recurring from that?

Yes. Thank you. Obviously, it's indeed important to us, especially in India on both OTC as well as nutraceutical on both in going to, let's call it, the traditional channel as well as the commerce what we are trying to achieve, first, we believe that we have an identified either by ourselves or with partners’ products that have a great data behind it, all the products that we will launch whether OTC as well as on taste, we will detect by scientific data. And we believe that this our brand and sectors as well as the relationships that we have with health care professionals can give meaningful value to those brands over time. These products are also less more consumer eventually driven with the recommendation of extortion -- and therefore, their business model is more sticky than the Rx generics even in India. And lastly, also the profitability once the branded porcine higher once the brand is established. We also say that because of our position in India because of our reputation being the reputable ethical company, many partners would like to work with us. And we believe that we can drive value by be innovation to India, that is done in other countries, and there is a lot of energy in that direction. So to summarize that, we are building now a meaningful portfolio meaningful R&D that is behind it, both internal as well as external. And as well as a group of partners that will continue to support it hopefully for many, many years. As for the digital, we are continuing to build the business. We are moving from more cities with our partners. And we will move from -- we will work in the actual value channels with our partners, back into insurance, working with companies, about employees as well as direct. And it is -- what we do now is primarily scaling up both the digital capabilities, the service associated with it, the physicians that are supporting it. So we are in more cities with more patients. And it is speaking on nicely, it is -- we do see a great unmet need for all patient services in India.

Okay. So is it going to have a kind of a meaningful implication on the MR productivity also -- if not...

It's not going to the amount you're asking -- I'm assuming the digital, right?

Yes, yes.

Yes. So the MRs are not relevant here. These are services that we are giving to patients, basically giving them end-to-end solutions about their need if you wish, it's a service, health service. It's not selling product. The amount of productivity needs to go up because of the focus that I mentioned before by focusing on more meaningful products that will be bigger and more focus with more data behind it. While selling brands that the relevant productivity of those grains is lower. And this is absolutely will increase significantly there now, Patra [ph].

Sure, sir.

We have our next question from the line of Rebecca Song [ph] from Bloomberg. Since there is no response. We'll take our last question from the line of [indiscernible].

I have a couple of questions on injectables. The first part, I just want to understand, are we seeing any industry-wide challenges in the space in terms of -- as far as the supply chain channel content because some of the peers have been highlighting for the last few quarters in terms of getting the component or raw materials. So I wanted to understand, are we also facing some kind of a thing? Or if that is the case, are we past and...

So there are naturally dealing with so many products in so many countries. There are challenges diverter, but nothing significant to report on about. Nothing that painted in the business. We -- and we do not anticipate major disruption as well. As a company, we are kind of let's say, costs adverse in a way that we do not have a single product or senior activity or email supplier or single countries that we are dependent on. So yes, there are challenges here and there, but nothing significant.

Okay. Secondly, on the long-term strategy for the injectables. I understand we are making heavy investment in this space. I wanted to understand this thing that do we have a goal that whatever the injectables we want to get into, we should be manufacturing in-house? Or is it also a possibility that of the products we can prefer to have a tie-up with contract manufacturers. Because in the past, also remember, there have been a couple of products where we did so. Do you see [indiscernible] or how do you see the strategy as far as injectables manufacturing is concerned?

Because they are offering of injectable is global. We always prefer as much as possible to do it in-house -- and for that, we qualified recently a lot of capacities. So we have now 3 relatively big facility in Alcoa, 9 and 11, LEVs qualified recently by the softer. That gives us a lot of capacity going forward. As we don't have access to all the technologies that are related to the injectables on both technologies, we will supplement them by inorganic moves, especially those type of products that does not make sense, for example, to make an India sale in the United States. So for the base, we have a different solution. So if you wish, largely, it's going to be organic with some of them.

Okay. That's quite helpful.

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

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

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