Title

Presentation

Dr. Reddy’s Laboratories Limited beats earnings expectations. Reported EPS is $0.2, expectations were $0.18.

Operator: Ladies and gentlemen, good day, and welcome to Q1 FY ’26 Earnings Conference Call of Dr. Reddy’s Laboratories Limited. [Operator Instructions] Please note that the chat will not be monitored for any questions to the management. I now hand the conference over to Richa Periwal. Thank you.

Richa Periwal: Thank you, Aishwarya. Good morning, good evening, and a warm welcome to all. Thank you for joining us for Dr. Reddy’s Q1 FY ’26 earnings conference call. We truly appreciate your time and participation. Joining us today are members of the leadership team, Mr. Erez Israeli, our CEO; Mr. MV Narasimham, our CFO; and the IR team. Earlier today, we released our quarterly financial results. These are now available on our website for your reference. We’ll begin the session with MVN presenting an overview of the financial performance for the quarter. Following that, Erez will provide his perspective on the business highlights and the strategic outlook. We will then move to the Q&A segment as mentioned by Aishwarya. Before we proceed, please note that today’s call is the proprietary material of Dr. Reddy’s Laboratories and cannot be rebroadcasted or attributed in any media or press outlet without prior written consent from the company.

This session is being recorded, and both the replay and the transcript will be made available on our website shortly. All commentary and analysis during this call are based on our IFRS consolidated financial statements. In addition, the discussion may refer to certain non-GAAP financial measures. A reconciliation to the GAAP measures is provided in our press release. We would also like to remind you that the safe harbor provisions as detailed in today’s press release apply to all forward-looking statements made during this conference call. With that, let me now hand it over to MVN to present the financial highlights for the quarter.

Mannam Venkatanarasimham: Thank you, Richa. A very warm welcome to all. Thank you for taking the time to join us today. I’m pleased to walk you through our financial results for the first quarter of FY ’26. The quarter began on a positive note, marked by a steady double-digit revenue growth. We delivered an EBITDA margin of 26.7%, modestly ahead of our aspiration of 25%. The inclusion of our consumer health care business contributed positively to top line momentum. All financial figures in this section are translated into U.S. dollars using a convenience translation of INR 85.74, the exchange rate prevailing as of June 30, 2025. Consolidated revenues for the quarter stood at INR 8,545 crores, which is USD 997 million, a growth of 11% on a year-over-year basis and remaining flat on a sequential basis.

This performance was driven by steady performance across most markets with the exception of the — of our U.S. generics business. Consolidated gross profit margin for the quarter was 56.9%, a decrease of 350 basis points year-on-year and an improvement of 134 basis points sequentially. The year-over-year decrease in margins was largely attributable to price erosion in generic segment, particularly in lenalidomide and lower operating leverage, partly balanced by a better product mix. Gross margin for Global Generics and PSAI were at 60.9% and 13.2%, respectively. Lower business margins in PSAI reflects seasonal weakness and under-recovery of overheads. The SG&A spend for the quarter was INR 2,565 crores, which is USD 299 million, an increase of 13% year-over-year and 7% on a sequential basis.

The year-over-year increase was primarily driven by strategic growth-oriented investments in consumer health care business of NRT and the Nestle, a JV for nutraceuticals portfolio. Both businesses represent strategic growth drivers, necessitating focused investment to unlock and sustain their long-term potential. Other SG&A expenses remain well managed and broadly flat on a year-on-year basis, reflecting discipline in cost control across core operations. Consequently, SG&A expense accounted for 30% of the sales during the quarter, was higher by 44 basis points on year- over-year and 173 basis points on quarter-on-quarter. The R&D spend for the quarter was INR 624 crores, which is USD 73 million, remaining broadly flat on a year-over-year basis and declined by 14% sequentially.

We continue to make targeted investments in our complex generics, API and biosimilars pipeline to support long-term growth. The R&D spend was at 7.3% of the sales for the quarter, lower by 76 basis points on year-over-year and 123 basis points quarter-over- quarter. For the full fiscal, we expect the R&D investments to be in the range of 7% to 7.5% of the sales. EBITDA for the quarter, inclusive of other income stood at INR 2,278 crores, which is USD 266 million, an increase of 5% on year-over-year and a decline of 8% on a Q- o-Q basis. The Q-o-Q decline was primarily driven by higher revenue and lower other income on relatively flat revenue base. EBITDA margin stood at 26.7%, was lower by 149 basis points on year-over-year and 243 basis points on a Q-o-Q basis.

The net finance income for the quarter is around INR 157 crores as compared to INR 84 crores for the same quarter last year. As a result, the profit before tax for the quarter stood at INR 1,905 crores, that is USD 222 million. PBT as a percentage of revenue was at 22.3%. Effective tax rate for the quarter was at 25.9% compared to 26.04% in the corresponding period last year. We expect the normalized ETR to remain around [ 25% ] for the full fiscal year. Profit after tax attributable to equity holders of the parent for the quarter stood at INR 1,419 crores, which is USD 166 million, a growth of 2% on year-over-year and a decline of 11% on a Q-o-Q basis. This is at 16.6% of revenues. Diluted EPS for the quarter is INR 17.04. Operating working capital as of 30th June 2025 was INR 13,320 crores, which is USD 1.55 billion, an increase of INR 722 crores, which is $84 million over 31st March 2025.

CapEx cash outflow for the quarter stood at INR 683 crores, which is $18 million. Free cash flow generated during the quarter was INR 433 crores, which is $51 million. As of June 30, 2025, we have a net cash surplus of INR 2,922 crores, which is USD 341 million. Foreign currency cash flow hedges executed through derivative instruments during the period are as follows: USD 648 million has been hedged using structured derivative contracts scheduled to mature over the next financial year. These contracts provide a minimum production rate of INR 86.13 per dollar while also allowing participation in the event of dollar appreciation. RUB 3.7 billion hedged at fixed rate of INR 1 per Russian ruble with maturity falling within the next 4 months. With this, now I request Erez Israeli to take us through the key business highlights.

Erez Israeli: Thank you, MVN. A very good morning and good evening to everyone joining us today. We appreciate your time and interest. Our performance in Q1 highlights consistent performance and steady progress of our strategic agenda. We delivered a double-digit growth in our base business, advanced critical pipeline programs, including semaglutide and abatacept. We remain focused on optimizing structural costs and a driving operational efficiencies. We are also consistent with our strategic priority as we scale our presence in consumer health, innovative therapies and biosimilars. Overall, our results were broad-based except some softness in the U.S. generic market. Let me now walk you through some of the key highlights from the first quarter.

Revenue grew by 11%, reflecting a sustained business momentum and consistent execution. We delivered EBITDA margin of 27%. The RoCE for the quarter was 22%. We closed the quarter with a net cash surplus of $341 million, reinforce our strong balance sheet position. Our biosimilar business gained momentum this quarter to a strategic collaboration with Alvotech for the co-development, manufacturing and commercialization of pembrolizumab, a biosimilar Keytruda. The phased integration of the acquired Nicotine Replacement Therapy, the NRT business is progressing as planned. Following the successful integration in the U.K. and Nordics, we are now preparing on board additional markets including Canada, Australia and other selected countries across Western Europe in the next phase.

During the quarter, the USFDA inspected our Middleburg API facility in New York and issued a Form 483 with observations. Following our response, the site has been classified as — The agency also conducted the GMP inspection of CTO-5, our API facility in Miryalaguda, Telangana and issued a Form 483 with observation. We have submitted timely response in line with our regulatory requirements. Last week, USFDA conducted a GMP enty approval inspection at our FTO 11 formulation facility in Srikakulam, Andhra Pradesh, resulting in Form 483 with 7 observations. We will respond within the required time lines. In recognition of our sustained commitment to sustainability, our Carbon Disclosure Project, CDP rating for 2024 was elevated to an A in the climate category, making us the only Indian pharmaceutical company with this score and placing us among the top 2% of any companies globally.

We also retained our leadership status in the Water and Supplier Engagement categories, reflecting our consistent performance across key environmental dimensions. Let me take you through the key business highlights for the quarter. Please note that all financial figures mentioned are reported in their respective local currencies. Our North American business generated revenue of $400 million for the quarter, a 17% year-on-year decline and 4% decrease sequentially. The softness in the market was primarily due to price erosion in selected products, primarily lenalidomide as well as timing of procurement of this product by certain customers. During the quarter, we launched 5 new products and expect a pickup in the lost momentum in the remainder of the fiscal year, which is expected to support recovery and drive growth in this segment.

Our European generic business delivered revenue of [ 131 million ] for the quarter, making it a 124% year-on-year growth and 6% sequential decline. The year-on-year performance was primarily fuelled by the contribution from the acquired Nicotine Replacement Therapy portfolio and the new product launches, which provided an offset to some pricing erosion. During the quarter, we produced 13 new generic products across European markets, further strengthening our portfolio and reinforcing our growth trajectory. Our emerging market business reported revenue of INR 1,404 crores in Q1, reflecting a 10% year-on-year growth and flat sequentially. Growth was primarily driven by higher volumes and further supported by new product launches. During the quarter, we introduced 26 new products across multiple countries, reinforcing our commitment to expanding access and deepening market prices.

With this segment, our Russia business delivered a 17% year-on-year growth and 2% sequential increase in constant currency terms, underscoring its continued momentum despite macroeconomic challenges. Our India business reported revenue of INR 1,471 crore in Q1, delivered a double-digit year-on-year growth of 11% and 13% in sequential increase. This performance was primarily driven by contributions from new product and pricing. According to IQVIA, we continue to hold our position as the 10th largest player in India pharmaceutical market and have outpaced market growth with moving annual total growth of 9.2% compared to IPM of 8% growth and MQT growth of 11.2% versus IPM growth of 8.6%. During the quarter, we launched 5 new brands, including 2 innovative assets, Beyfortus, which is an RCV (sic) [RSV] Vaccine and a product called Sensimmune in Q1, further strengthening our domestic portfolio and reinforcing our growth momentum.

Our PSAI business reported revenue of $95 million in Q1 FY ’26, registering a [ 4% ] year-on-year growth while experiencing a 14% sequential decline. The business momentum is expected to pick up in the coming quarters, positioning us to return to a double-digit growth trajectory for the fiscal year. During the quarter, we filed 12 Drug Master Files. We remain committed to strengthening our pipeline as a key driver for future growth while actively pursuing a strategic collaboration to accelerate innovation and expand our capabilities. Our R&D efforts remain concentrated on complex generic high impact like GLP-1 group and biosimilars, which are a central to our long-term value creation strategy. During the quarter, we completed 11 Global Generic filings.

As we move through the fiscal year, our focus remains on strengthening our base business, advancing key pipeline assets like semaglutide and abatacept, building commercial strength in regulated market and improving efficiency and cost structure. We are actively exploring strategic partnerships and acquisitions to diversify and strengthen our portfolio. These efforts reflect our commitment to agility and disciplined execution in a very dynamic market environment aimed at delivering sustainable value for our stakeholders. With that, I will welcome your thoughts and questions as we move into the QA session.

Operator: Thank you, Erez. We will now begin the question-and-answer session. [Operator Instructions] I would like to reiterate that the chat will not be monitored for any questions to the management. However, in case of any technical concerns, please do feel free to use the chat option to reach out to us. The first question is from the line of Amey Chalke from JM Financial.

Amey Chalke: The first question I have is on the U.S. based business. Is it possible to give some guidance on how it has performed quarter-on- quarter, whether it has improved or gone out directionally? And how the base business is expected for the FY ’26 as well for the U.S.?

Erez Israeli: Amey, there was maybe something with the mute button or something. Can you just repeat your question, please?

Amey Chalke: Yes, I wanted — I was asking the U.S. based business, how it has performed Q-on-Q basis, whether it has increased or decreased directionally? And for FY ’26, what is our outlook for the U.S. based business?

Erez Israeli: Yes, so the base business in the U.S. was — yes, the base business in the U.S. decreased. It’s primarily timing so I will say I don’t see anything relative special. There were some key products, especially Suboxone in which there were kind of orders that moved from a quarter-to-quarter. I would not give too much importance to it. Overall, the base business, the way I see it going to be flat to single-digit growth that we normally are discussing, so of course, depends on the success in some product launches that we are going to be. Most of the decline that you see Q-on-Q was attributed to lenalidomide.

Amey Chalke: And the second question I have is on the REVLIMID. So going ahead, do you expect some pickup in coming quarters before going down from Q3? Or you expect the similar trajectory for REVLIMID for upcoming quarters as well?

Erez Israeli: So we are not discussing specific number on this product but it is important people we know. Naturally, we are trying to avoid shelf price adjustments. So what you should anticipate is 1 more quarter, give or take, in the range of what you have today and relatively much less in Q3. And after that, some left over, and that’s it.

Amey Chalke: Just last question if I can squeeze in. On semaglutide launches in the ROW nonregulated market, when should we expect that to happen?

Erez Israeli: So in the what you call ROW, most of these launches so we are prioritizing the capacity that we have to launch in Canada. So assuming that this will happen, the launch in the rest of the countries during calendar ’26, 87 markets overall, most of them are small. The key will be India, Brazil, Turkey and products like that will be after March of ’26. Canada has an opportunity like we discussed many, many times to be before that.

Operator: The next question is from the line of Neha Manpuria from Bank of America.

Neha Manpuria: My first question on the U.S. pipeline, North America, obviously, we have sema that we’ll probably get to know in the near term. One, if you could tell us what time lines we need to watch for sema and for Canada, particularly? And second, other than that, the single- digit growth that you’re talking about, does that include any high-value launches in the second half that we should watch out for? And I’m asking this because we also saw a VAI inspection for the Srikakulam facility recently.

Erez Israeli: Yes. So we — I’ll start with the last part, Neha. I believe that we will get a VAI. The observation that we got, to my opinion, are addressable and we should expect a VAI from that. On the timing of semaglutide, we are still planning and gearing to get approval of the product somewhere between end of October to beginning of November. And if this will happen, we can launch the product at the time of the loss of exclusivity in the beginning of January 2026, and that’s what we are gearing ourselves to do. As for the rest of the — as for the rest of the products, with this analysis that we made, meaning that I tried to give you how I see the trajectory of the year, we did not take into account a very significant, let’s say, out of the order relaunch.

We are planning to launch about 20 products in the United States. But none of the, let’s call it, the sophisticated product, we learned from experience, and I’m trying not to give — I look at them as an upside. So it could be upside to that — the trajectory that we see. Another thing on sema, just to make sure that people have the complete picture, we are having two assumptions as related to Canada, one that from an IP perspective, we’ll be able to make and ship the product to Canada, which is a country without a patent; and second, that we will get approval in that period of time. Obviously, if these two assumptions will not happen, it may change the trajectory of semaglutide.

Neha Manpuria: Another question for you. Just looking at the gross margin trend for this quarter, given a quarter where we’ve seen a fair bit of erosion in REVLIMID, they still managed to improve gross margins. If I were to think about the full year, how should we think about gross margins particularly going into fiscal ’27? And historically, you’ve also mentioned that SG&A cost will be in the 28% of sales range, but obviously, it’s tracking higher. So is it fair to assume that this is the new range for the SG&A cost, the closer to 30% mark that we have reported in this quarter?

Mannam Venkatanarasimham: So let me first, thanks, Neha and as far as gross margin is concerned, I think at least for this year, it would be in the similar levels and because there could be a higher sales from the base businesses in the branded markets and other BUs. And that’s where I think for this year and next year is like clearly, I just don’t want to give you any number at this point of time range also like — this definitely, once we launch in the semaglutide, we can model it. That’s where it is, I think, we can see. As far as SG&A is concerned, I think we, even for the — on the full year basis, it should be in the zone of like 28% to 29% zone, not like at 30%.

Erez Israeli: I just want to make sure, Neha, if we successfully launching semaglutide, we should be absolutely good in all the parameters that we are familiar with, meaning the EBITDA as well. So we are aiming that the base business will be always north of 50% and in semaglutide, it should be even more than that on the gross margins and EBITDA, obviously, like always, 25% or north of it. In the time in which we don’t have lena and we don’t have sema, likely that these parameters will be lower than that.

Operator: The next question will be from the line of Damayanti Kerai from HSBC.

Damayanti Kerai: My first question is again on lenalidomide. So Erez, for 2Q as well also, you have mentioned the level should be similar to what you booked in the June quarter? Or there is still like some room to book higher sales, given I think you want to book most of the sales intended for FY ’26 in first half itself?

Erez Israeli: In order, not too much because there is also moving parts on prices. The price went down in this fiscal versus last fiscal. But overall, let’s call it similar magnitude. I will not say the same but similar magnitudes.

Damayanti Kerai: So on the pricing pressure part, is there a possibility you will be facing higher magnitude compared to the current level? Because I understand your competitors are also trying to pass on maximum volume, which is possible in first half itself. So in view of that, will price erosion intensify possibly from here?

Erez Israeli: We hope not. I believe not because most of the booking was done already. In general, naturally, when more companies can this year, they had bigger quotas and they try to sell in last quarter. So by design, it creates certain density versus the year before. It is all well anticipated. So honestly, I don’t see any surprise. And in my discussions, especially in the last couple of weeks, and I met quite a few people during this period of time, we cannot explain it. So I believe that what you should see from us, it’s, give or take, similar magnitude of pricing as well as quantities. And after that, it will be a sharp decline in the other quarter.

Damayanti Kerai: My second question is on semaglutide regarding your preparation. So can you update us on your capacity expansion at Vizag and when do you expect that capacity to come on board?

Erez Israeli: Yes. So we are — the launches that will happen in FY ’26 and FY ’27 will not be out of Vizag, it will be with our partner and using our API but with a partner and which means that the capacity of FY ’11 (sic) [FY ’27] will come from FY ’28 onward. We will likely to have, in the beginning with our partner, about 12 million pens in FY ’27. And if you look at calendar ’26, because it’s very relevant for the potential Canadian launch, it’s about 10 million pens. This is what we are planning to have.

Damayanti Kerai: So for ’26 and ’27 fiscal year, you are good to go with 12 million pen capacity from your partners. Do you think that, that will be sufficient to gain meaningful market share in the market which you are targeting?

Erez Israeli: We believe so. We believe so that — naturally, we would love to have more, but we feel very confident about this magnitude. There is maybe potential upside to it, but this amount, I feel very confident about. Now it’s a matter of what mix of market we will get overall and then what will be the average price for those. That, of course, is unknown. But yes, I feel very comfortable about this magnitude.

Operator: The next question is from the line of Madhav Marda from Fidelity International.

Madhav Marda:

Fidelity Investments: First question was if you could just give us an update on the biosimilar abatacept Phase III trials, how that is progressing? And by when do we expect outcome for the Phase III trial? That’s my first question.

Erez Israeli: So, so far, so good. The readout is November ’25, which is as expected in accordance to the time lines. Following the readout, which I hope will be open believe that it will be positive, we are planning to submit a BLA in order to be on time for the market formation, which is December ’26 or January ’27, let’s say, if we look for the realistic launch because there are some registration post approval. Just to make sure that you have the full picture, and the launch at the beginning of calendar ’27 can be of the IV formula, the formulation, the subcutaneous formulation because of IP will be a year later.

Madhav Marda:

Fidelity Investments: And the second question is on the cost saving measures. So would you give us some sense in terms of the extent of cost savings that we can drive? And if you could give us some sense in terms of in the R&D spend, given we do have a Phase III trial of biosimilar abatacept ongoing, what’s the quantum of that spending? And I’m assuming that spending should not recur next year, so the extent of cost savings that we can drive for the organization next year?

Erez Israeli: Absolutely, you got it right. We used the time in which we enjoyed the backing the tailwind that came with lenalidomide. And we boost some investment in the future, including abatacept, including the creation of the franchise of the GLP-1, including the buildup of the facility for that, including the acquisition of the NRT business. So all of that was done because we had access to more financial capacity and we used it. As you said rightly, some of that investment, we don’t need anymore. Post, for example, November ’25, we’ll not have to pay for the clinical trial of abatacept. We also kind of feel that there are discretionary cost between R&D, SG&A that can be 500 basis points, 600 basis points that we are planning to adjust in accordance to the motion.

We need to remember that we have also some question mark of how the future will hold between tariff and the semaglutide, the magnitude. So accordingly, we are preparing a scenario. So the idea is between growing the base semaglutide and the expenses as well as a success, we will kind of manage to make sure that the growth is coming in the right way.

Madhav Marda:

Fidelity Investments: Sir, just to clarify, when you say 500 to 600 basis points, Dr. Reddy sale, it’s at about, let’s say, INR 30,000 crore plus top line. So 500 to 600 basis points, are you saying that potentially to save INR 1,500 crores to INR 1,800 crores on cost? Is that the right way to think? Of course, like you said, it depends on how the business shapes up, but is that the potential?

Erez Israeli: The potential is like that but it doesn’t mean that we are going to save all of this. I’m not recommending you to put in the model that much. But absolutely, that’s the game that we play. So we prepared it in advanced naturally. The lenalidomide was a known factor. We are preparing for it for — actually, since we signed the deal. And that’s part of the idea. Hopefully, we don’t need it because if the growth will allow us to invest more, eventually, we want to invest because we want to create additional future and we want to be a growing company for many, many years. So we are trying to manage the famous 25%, 25% double-digit growth also into the future. It’s not going to be necessarily every quarter because of this timing of some big products, as you can appreciate. But I’m confident that on the big scheme, we will be there.

Madhav Marda:

Fidelity Investments: And if I can ask one last question. When you said that we have 12 million pens available in FY ’27, I guess you’re right that the mix of markets will be important for the profitability. But are we confident, given we plan to launch in more than 80 countries, potentially some of which can be small as well, but that we can sell the entire 12 million pens with or without Canadian approval, like we can sell the entire volume at least?

Erez Israeli: I believe so for two reasons. One, in all of these markets, we are aiming to be first or among the first. Second, the demand for this product looks crazy. And so far, the indication in the places that we started to speak to people can confirm this, that the demand is there. Yes, so I believe that it’s absolutely possible.

Operator: The next question is from the line of Dr. Harith Ahamed from Avendus Spark.

Harith Mohammed Ahamed: So a couple of questions related to your U.S. pipeline. The first one is on generic liraglutide, which you had filed sometime in 2023, and I see that there are quite a few generics already in the market. And it’s a fairly decent opportunity. So what are the status of our filing and what are the time lines you are looking at?

Erez Israeli: It’s a product that we obviously have and we are planning to launch it also in the next coming quarters. And in some markets, we will be late. In some markets, we will be first to market. It’s also, as you know, liraglutide is Victoza and Saxenda. We believe that with Saxenda, we are going to be first to market or some of the first to market in semaglutide. So it’s a product in the mix. It’s not as big as semaglutide, that’s why we’re not talking about it. But if you recall, we have about 25 products, as we call them, peptides or how to make or with bigger potential asked me about it before. I’m not guiding on those products before they are coming, but liraglutide is definitely one of them and we are planning to launch it.

Harith Mohammed Ahamed: On semaglutide in Canada, you said earlier that you’re making two assumptions. One of them is that there won’t be any patent protection for the brand in Canada. So is there a risk to that assumption? Or is there any scenario where there could be a patent-related hurdle to your launch?

Erez Israeli: So just to correct, there is no patent in Canada. What keep the product from being launched is that exclusivity that will expire in January ’26. There is a patent in India that we are now litigating in the Delhi High Court. And of course, so far, we are following the instruction of the court and we are preparing for that. And the second is that we need to get approval. If both will happen, we will be good. I don’t see IP situation in Canada that will stop us.

Operator: The next question is from the line of Dr. Bino Pathiparampil from Elara Capital.

Bino Joseph Pathiparampil: Most questions got answered. Just a couple of them. On the PSAI gross margins, it has been — it was very weak this quarter. I think your press release talks about some operating leverage issue. But if I look at the top line in PSAI, it has not changed materially Y-o-Y or Q-o-Q. So why then the gross margin decline from mid-20s to low teens?

Erez Israeli: Actually, the API business is healthy. And the reason for that is some of the demand products for the U.S. are also being back integrated and also the way we build the inventory. So if you wish, it’s attributed to the internal sales. Once there is less internal sales, there is more cost allocation or whatever is sold in according to accounting and that’s what created. It’s actually a very healthy business and it’s growing. And you’ll see that it will correct itself in the next coming quarters.

Bino Joseph Pathiparampil: In others, I see about INR 165 crores, which is more than the usual quarterly run rate. Is there any onetime other operating income there?

Mannam Venkatanarasimham: In this, we have an out-licensing income from our origin. So that is like a — it’s always, I think, is part of our regular business. I think business, that’s what is there. One, this quarter, we have that income.

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

Saion Mukherjee: Sir, can you share the PLI income or the government grant that you generally share for the quarter?

Mannam Venkatanarasimham: So Saion, here, if you remember, like overall INR 1,000 crores for a period of 6 years. I think the first 4 years quarter we have already — because we have just taken, we have got additional approvals and then we accounted for FY ’26 PLI is not much. I can say almost is 0. Then once again, you will see the PLI income in FY ’27, ’28.

Saion Mukherjee: So there is not much in this quarter is what you’re referring?

Mannam Venkatanarasimham: Not this quarter and for the full year also is almost — let me put it, I think, is very small value is there, not very big.

Saion Mukherjee: And on the PSAI front, with regard to Origin Pharma Services, if you can throw some light how you see the CDMO business scaling up? And what kind of customer or profile of customer and kind of products or services you’re offering?

Erez Israeli: So it is growing. It’s — I don’t remember how much we sold, but I think $17 million or $18 million this quarter or something like that. We are gearing up for about $100 million of sales for the full fiscal. It’s a combination of small molecule CDMO as well as biologic CDMO, primarily ADC. It’s kind of a combination of both. It is growing nicely. It is not that we are going to be a CDMO company, but it’s a nice growing business as we speak. And we see that there is enough traction for those that wants kind of our size of business and that creates synergy with Dr. Reddy’s, those that are not afraid from Dr. Reddy’s but actually want to have a synergy with us, especially as related to collaboration on clinical trials, R&D activities and even marketing rights in emerging markets.

Saion Mukherjee: But it is like do you have, from $100 million this year, I mean, what should we expect, let’s say, 3, 5 years down the line? Do you have some line of sight of growth in this business?

Erez Israeli: Yes, it should be between $250 million to $300 million by 2030.

Operator: The next question is from the line of Tushar Manudhane from Motilal Oswal.

Tushar Manudhane: So just on this Keytruda biosimilar, if you could share like throw some insights in terms of the kind of spend that will be done on the clinical trial on a combined basis, Dr. Reddy’s as well as [indiscernible] basis.

Erez Israeli: We — if you recall, we are targeting on biosimilars, being a relatively young organization in that space, to try and bring products that want to do ourselves or product with relatively less level of competition. And this is how we target abatacept, [indiscernible] in this kind of products. Pembro is a molecule that many, many markets want, naturally being a very, very important molecule in this space. But we felt that it’s likely to be crowded. So the exemption of Phase III, no Phase III plus collaboration plus the ability to licensing create a equation in which the level of net investment is not much. And then it’s — it can create a very good ROI, especially when we are going to the relevant markets. So the intent is to launch it in many markets, including the United States, including in Europe, but with much less burden of a prior investment. This was the thinking behind it.

Tushar Manudhane: And the trials, again, given that this molecule has been there for multiple indications, so what is the thought process like we’ll be progressing with certain indication to start with? And then or the clinical trials of the biosimilar version would be as good as the innovator molecule?

Erez Israeli: So you don’t need to do it for the indication. Actually, the type of trial that we do allow you in each one of the market to get the same indication that is approved for the market of Keytruda. So you don’t need to do it for multiple indication. You can have one trial and get all the relevant indications as it’s going to be interchangeable product.

Tushar Manudhane: And just 1 more on the R&D spend, like this year, it’s relatively less as a percentage of sales, like almost 7%, 7.5%, summing up to, let’s say, compared to FY ’25, which was almost 8.5% to 9%. Given that we have such complex assets in the pipeline, what is sort of the thinking to sort of reduce the R&D spend, both as a percentage of sales as well as maybe on the absolute amount as well?

Erez Israeli: Like I mentioned before, we have certain level of 500 to 600 basis points that of what I call discretionary that we can play with in order to match the sales growth as well as to the expenses. R&D is part of it. So right now, you should think about 7%. We have, of course, enough project to go more than that. If the P&L and the numbers will allow us, we will do that. And if not, we can go even down to 6%. So we have that flexibility. Like I mentioned, the profitability of the company, very important for us. This is the level of flexibility that we have on the R&D. Right now, we are somewhere in the middle, waiting for to see how the next quarter will evolve.

Tushar Manudhane: And just one last one if I may. While there are many questions asked on semaglutide, but broadly you think this is like sort of a 2-year opportunity, 1-year opportunity or much more than that?

Erez Israeli: First of all, I see that has many, many years of opportunity. Actually, we are entering a decade of GLP-1 products. Obviously, it’s not going to be — it’s going to change and evolve. At the beginning, it will be more like to start to be in the market, to try to get in those markets that will be first or among the first certain premium, selling our capacity. We believe that this segment will grow significantly. We will add capacity. There will be more volume, obviously, lower prices. And we are going to see brands, branded play with the consumer care play, like in the obesity or differentiated devices and stuff like that. So actually, it’s just the beginning of the journey. More products will be added. By the way, the full portfolio of GLP-1 for the company is 26 products.

Obviously, the semaglutide as well as the [indiscernible] product will be the biggest and we are trying to get for each one of them to be first to market as well as to create some differentiated play. So it will evolve. 2026 is just the first year that we will significantly deal with these products.

Operator: [Operator Instructions] The next question is from the line of Shyam Srinivasan from Goldman Sachs.

Shyam Srinivasan: Just the first one is on — we did CapEx of $80 million. We have about $350 million in cash. So just want to understand outlook on CapEx for the year. Where is it generally being spent for? And the sub-question is on $350 million of cash. So what is the — other than CapEx maybe, what is the other areas of revenues where we are looking to deploy this cash?

Mannam Venkatanarasimham: So CapEx is this year also would be more or less like last year’s level. We are overall, for the full year, we are expecting cash outflow for — in the range of INR 2,500 crores to INR 2,700 crores. That is the level. And then this entire CapEx also, the large investments is going for peptides and biosimilars.

Erez Israeli: As you know, we are looking for BD. Like I mentioned, we have 4 levers of growth, the baseline growth, special products, cost optimization and BD. We believe not just this cash. We have also the ability to borrow that we have $2 billion to $2.5 billion of financial capacity. And we are engaging as we speak with BD and hopefully will come and BD, you can never guide but we are definitely working on it and we see growth opportunities.

Shyam Srinivasan: There is a $2 billion, $2.5 billion is like what is the net debt to EBITDA or what is the leverage you have in mind?

Mannam Venkatanarasimham: This is Shyam, [indiscernible] going to be like [ max $2.5 billion ].

Shyam Srinivasan: Just a second question on the India business. We have outgrown IPM. So just want to understand, I know you talked about the top 10. But what can help us sustain double-digit or even outperforming the market? And if you could also give us some data points around what our field force is, what is our expansion plan in terms of distribution in India.

Erez Israeli: Sure. So Shyam, the — we decided, and I know you are fully aware of it and I appreciate it, that we will not focus on branded generic at the time. We believe that the growth in India will come primarily by producing innovative products, which are better than the standard of care that is used today in the market. And the growth that you see now is part of that. So we are launching innovative products in addition to generic. So the branded generic will be like normal price adjustment with some minor volume growth. We will not be that special on the branded generic. Some products will do more, some less. But our key that, and that’s why I believe in the consistency is because we signed many deals so far on branded products and more to come.

So we believe that we will outpace the market and that’s what will grow our ranking and still committed to the #5 in the market. We are doing it in a slow way because we are not acquiring to be there. We are growing that organically, actually, inorganically, if you consider license again and that’s what we are planning to do. We should see consistent double-digit growth in India in the coming quarters and years.

Shyam Srinivasan: Just the data point on the field force, [indiscernible]

Erez Israeli: Yes, about 10,000 people in 50 teams.

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

Surya Narayan Patra: My first question is about biosimilars. So it seems that we are busy in licensing, doing deals for biosimilar to expand our portfolio there. Could you provide some pipeline visibility for U.S. market, let’s say, starting from FY ’27 or ’28? Which are the key product opportunities that we are targeting for the U.S. market?

Erez Israeli: So obviously, the key products will be abatacept. Abatacept, like I mentioned before, end of calendar ’26, January ’27, we should launch the IV product. And in the year after, we will launch the subcutaneous.

Surya Narayan Patra: Okay, yes. Second product, I missed that. So if I you can just…

Erez Israeli: Then we will have launches of smaller product, which is — obviously, we will launch denosumab here prior to that, primarily to prepare the launch of abatacept. So we took licensing of this product for both Europe and U.S. because it’s the similar customer base, especially similar doctors. So in a way to prepare the team, so by the time that abatacept will come, we’ll have the team as well as to have that ready. In addition to that, after that, we’ll have pembrolizumab, we will have daratumumab and obviously, more products will come to the U.S. But right now, these are the 4 names that will be in the U.S. Rituximab, we will have also in the U.S., but with Fresenius, not by our people.

Surya Narayan Patra: My second question is about the Russia business or the — or particularly the secondary tariff what either emerging from the European sanction or the U.S. sanction, on Russia. So whether this is a kind of factor of worry for us?

Erez Israeli: No, if at all, it’s an opportunity. We are working freely in Russia, a great relationship with the country, great team that we have. And if other people will put sanction on it, the sanctions are not relevant to us. And if at all, it’s an opportunity.

Surya Narayan Patra: Sure, sir. Just last one point on the NRT. We have reported that there is a Q-o-Q growth of around 12-odd percentage. So is there any seasonality in that NRT portfolio? And what growth likely like that the portfolio would have seen on a Y-o-Y basis?

Erez Israeli: Yes. So first, no seasonality. This is a smoking cessation brand. Second, it’s normally the brand used to grow in single digits. So far, we are accelerating it and — but we are still — at least in our business model, we anticipate a mid-single-digit growth. Right now, so far, knock on wood, this acquisition is exceeding our expectations.

Operator: [Operator Instructions] The next question is from the line of Abdulkader Puranwala from ICICI Securities.

Abdulkader Puranwala: My first question is with regards to semaglutide. So sir, just on — we spoke a lot on the call in perspective of the launch timing. But in terms of pricing, if you could provide some color on tentatively indicating at what price point you may want to introduce this product in Canada and other markets?

Erez Israeli: As high as we can. Honestly, I wish I could give you a much better answer. It’s very much depends on how many competitors will be, what will be the reimbursement. so the scenarios are very wide. So it will be dictated, obviously, by number of — whatever the market will give us, we will take.

Abdulkader Puranwala: Sure, sir. And just next one question on the expenses, what you would have incurred on NRT and nutraceutical. So when you talk about 500 to 600 bps of cost savings, would that be that — would it be safe to assume that a lot of that is currently getting anchored towards these 2 products, which may not happen in the near future once REVLIMID goes off?

Erez Israeli: No, we are talking not about discretionary costs are normally costs that you can save at the time that you need to, which are not supporting sales, so no support marketing. Obviously, we just got the product. We want to grow it. We will invest in it. We are talking about things that are good to do also on the ongoing basis. But for sure, if you need to save money, less traveling, less meetings, less consultants, et cetera. So this kind of the discretionary that will not touch the sales. We are not desperate. We are actually very comfortable with what we do. We knew that lena will come. But no, we are not planning to cut expenses that are supporting the growth of the company. The priorities to grow the company.

Operator: The next question is from the line of Foram Parekh from Bank of Baroda Capital Markets.

Foram Prashant Parekh: Most of my questions are answered. Just on the NRT front, should we still assume EBITDA margin to be 25%? Or would it be in the neighborhood, if you can just throw some light on that?

Erez Israeli: Yes.

Foram Prashant Parekh: Okay. And on the Europe front, ex of NRT, the growth has come down to 15%, so going forward, do we expect it to bounce back to about 20% kind of growth as we have new product launches and biosimilar launches? Or can we work out with 15% kind of growth?

Erez Israeli: First of all, to grow double digits in generic business is not bad. Yes, once we will launch the biosimilars, it will accelerate this growth. It’s hard for me now to calculate the percentage because I think we are launching each one of them in 10 countries, and it’s pretty complicated. But let’s say, we should expect double digit from Europe. But if it’s 15% or 20%, it’s hard for me to tell third quarter. The important part about Europe is it’s all leverage activity. These are all products that we have not just for Europe. And that’s the beauty of this business. It’s adding to the economy of scale. And so far, so good. Yes. So it’s in the neighborhood of what you said, maybe plus, but I’m taking a disclaimer that I don’t know what will be exactly the timing of the biosimilar and how it will contribute to that.

Foram Prashant Parekh: Sure. No problem. And lastly if I may squeeze in. Can you just throw some color on how do you see — ahead of the semaglutide launch in India, how do you see obesity market forming post the launch, given that the size of the obesity market is very small with just 1, 2 innovatives? So post generic, how do you see the obesity market expanding in India?

Erez Israeli: I believe that it’s going to be significant. The unmet need is very, very clear, especially for people that live here in India. And so I believe that it’s a big opportunity.

Foram Prashant Parekh: Would it be possible for us to quantify?

Erez Israeli: I don’t want to give you unreliable numbers. It’s big. Potential is big. I don’t know to say how much.

Operator: The next question is from the line of Shashank Krishnakumar from Emkay Global.

Shashank Krishnakumar: My first question was on the out-licensing income, which we booked this quarter. Is it possible to quantify that?

Mannam Venkatanarasimham: It’s INR 120 crores.

Shashank Krishnakumar: Got it, sir. Sir, my second question was…

Mannam Venkatanarasimham: But, currently Shashank, just I would like to add, this is not like a onetime income. This is like always a few quarters in a year or I think going — it always will be there.

Shashank Krishnakumar: My second question was more from a medium-term strategy standpoint. We have technically relied on high-value complex generic launches in the U.S. How do we sort of reconcile that with the fact that we are also looking to sort of moderate our R&D spend. I think you mentioned possibly we can also reduce it to 6% going forward. So can we still keep pace with the pace of complex generic launches that we have typically done in the past in the U.S., if we sort of moderate R&D spend going forward?

Erez Israeli: Yes. Just to remind, R&D spend are relevant for products that will be launched in the United States between 10 to 12 years from now. So yes, absolutely, we can decide how much we spend for the future and how much to keep in accordance to our performance. I don’t see any effect for the immediate terms because all those products were either we committed the development or we have the files already.

Operator: The next question is from the line of Aman Vij from Astute Investment Management.

Aman Vij: Sir, first question is on the semaglutide API side. So if you can talk about our yields currently and the quality and the pricing compared to Chinese API players because I believe they have a lead. But we are talking — we are planning to set up a big capacity in India, which is much more than the guidance of 10 million to 12 million pens you have talked about for 2 years, which we are targeting. So could you talk about this side?

Erez Israeli: Sure. Just first to calibrate, the 12 million pens is the launch for ’26. Obviously, only a small portion of the capacity will be used for that. We are also in this capacity, going to do products for third party as well as for the future as well as other peptides. So just to clarify, it’s not the competitive numbers. Second, in terms of cost, we believe that once we will finish the scale-up, our products will be competitive with other competitors, including China.

Aman Vij: That is heartening to hear, sir. Second question is on the Delhi High Court patent challenge, which I think by next week, we will get an answer. But I’m saying in my understanding, in worst case scenario, isn’t it just that even if it goes against us, it means we will be able to launch only 2 months later because India patent expires in March versus Canada in January? It doesn’t delay beyond 2 months in worst case scenario, is the understanding correct?

Erez Israeli: The understanding is correct as related to the timing of the launch in India. For us, it is important to enable our launch in Canada. So the Canadian launch then will be more than 2 months. If it will not go our way, obviously, I cannot react because it’s the laws in India are not reacting on any prejustice situation. But we believe that it’s going to go in the way that will be satisfactory to us.

Aman Vij: Sure, sir. Just final question. You’ve talked about 10 million, 12 million kind of capacity which we have tied up with, say, the fill finish players and the pen player. So in a good case scenario, if the demand is, say, 2x our initial assumption. Will we have — do we have arrangements with both the parties, the suppliers as well as the fill-finish players that if the demand is way more because I believe there is a shortage of capacity in terms of both fill-finish and devices, so is there a case where if the demand is 2x, we can somehow arrange 2x volumes also?

Erez Israeli: 2x for calendar ’26 will not happen.

Aman Vij: ’27, sir. You said similar number for ’26 and ’27, right, so I was more wondered on ’27, not on ’26.

Erez Israeli: Yes. So I’m just not sure that you got it right. Calendar ’26. calendar ’26 which is FY ’27, but mostly is 10 million. If you take it as FY ’27 is 12 million. There is some upside to that, but normally, when I’m giving guidance, I have to be very, very accurate and reliable in what we are giving. That it will not be in that period of time.

Aman Vij: Okay. But slight increase, we’ll be able to manage with the arrangement, say, 30%, 40% extra than what we are predicting?

Erez Israeli: Depends on the definition of slides….

Operator: We will take the last question from Kunal Dhamesha from Macquarie.

Kunal Dhamesha: Just one on sema Canada. So — because there are 2 brands, 1 for type 2 diabetes, which is Ozempic and one for weight loss, Wegovy. So currently, Canadian authorities are not reimbursing Wegovy so for the weight loss indication. So how are we planning to tackle this issue when we launch our product?

Erez Israeli: We are going to launch only Ozempic, generic Ozempic. The submission of generic Wegovy will happen throughout the year. But the launch that we are discussing is only for Ozempic. I do not anticipate any issues with it.

Kunal Dhamesha: Sure, sure. And can you help us also understand the split of this 10 million pen capacity that we have between single-use spend versus multi-use spend? Because semaglutide in Canada is available in both versions, multi-use as well as single-use pen.

Erez Israeli: So the quantity that I mentioned is in a single-use terms.

Kunal Dhamesha: So 1 pen per week is the…

Mannam Venkatanarasimham: Yes, it’s like — we will end to 1 pen a week.

Operator: Thank you. With that, I will hand the call over to Richa for the closing comments.

Richa Periwal: Thank you, all, for joining us today. We appreciate your continued interest in Dr. Reddy’s and the time that you’ve taken to engage with our Q1 FY ’26 results. If you have any further questions or require additional information, please feel free to reach out to reach out to Aishwarya or myself. With that, this concludes today’s earnings conference call. Stay safe, and take care.