So, thank you, Erez, and greetings to everyone. I would like to thank Parag for his invaluable leadership and mentorship. He has been instrumental in Dr. Reddy's financial success and I look forward to building on the strong foundation that he has created. I also look forward to meaningful engagement with all of you and analyst community going forward. Thank you.

We can open the floor for Q&A now.

Thank you very much. We will begin the question-and-answer session. Anyone who wishes to ask a question may press ‘*’ and 1 on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press ‘*’ and 2. Participants are requested to use handsets while asking a question. Participants are also requested to ask not more than two questions at a time and to re-join the queue, in case of incremental queries. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have our first question from the line of Kunal Dhamesha from Macquarie Capital.

Hi, thank you for the opportunity and congratulations on a good set of numbers. First one, on the cash flow from operations, which seems to have come down meaningfully, despite our working capital is largely similar to the last quarter, right? So, what is driving the sequential moderation in cash flow generation?

Hi Kunal, thanks for that question. The reason the free cash flow is a bit on the lower side is because of fluctuation in factoring. You know, we do the factoring in various markets, largely in the US, depending on the interest rates and the benefit we get. And because of that, we have rolled back factoring a little bit in this quarter. But overall, the operational cash flow generated from the business is in line with the normal trends.

Sure. So it should pick up going forward, right?

Yes, yes. Absolutely, yes.

Sure. And second one on the SG&A expense, while you have highlighted that we are incrementally investing in the new horizon growth levers, etcetera, there is a step jump in SG&A expense. So is there any one-off included in this quarter's SG&A expense?

So, I said that in my opening comments, Kunal, that in this quarter, as usual, we are investing in new business initiatives. There are also some one-offs like increase in freight rates because of some route issues in the Red Sea, also a few one-offs and so on. And this is the normal fluctuation that happens from one quarter to another, depending on the sales and the level and the phasing of investments. Overall, we are confident that our SG&A percentage is going to be within the range of 27% to 28% for the full year. So yes, this is pretty much normal. It's just quarter-on- quarter fluctuation.

And the percentage you described is including the amortization?

No, that's not material. That's a normal amortization of intangibles that we always have, the normal level of amortization is included. What is one-off, I would say, is a spike in the freight cost, as I said, and a few other one-offs.

Amortization, Kunal, will be primarily after we close the Nicotinell® transaction. It will not be relevant before we close the deal.

Sure. And, one for Erez on the launch momentum in the US. I think you have launched three products in this quarter. And I think that our usual guidance is around 20-plus products, right? So are we on track to achieve that? And secondly, you also mentioned that we have roughly 25 ‘first-to-file’ filings according to us, right? So out of these 25, how many of these are expected to be launched in, let's say, next two to three years?

So the answer to the first part, yes, we are on track. How many exact ‘first to file’, anybody knows? I don't know exactly to tell you, Kunal. We will come back to you. I don't recall the number on top of my head, but, naturally, a few of them will be there. But I don't remember how many exactly.

Sure, sure. Thank you and all the best.

We have the next question from the line of Neha Manpuria from Bank of America.

Hi, good evening, everyone. Hope I am audible. So, Erez, my first question is on the OTC piece. Now, with the acquisition of the NRT portfolio, the Nestlé JV going online, how should we think about the potential size of the OTC business, let's say, in fiscal '27, '28? How big do you think this business can be? And are there any more acquisitions or capital allocation that you see in the consumer healthcare business to make it larger?

Yes. So, the OTC and consumer care, in general, is a focus for us. I'm kind of building on your question. We will have basically, primarily four spaces - one is the B2B generics, the other is branded generics and innovation, the third one is consumer care and the fourth is biologics. So that part is a little bit more than US$300 million, about US$320 million currently, spread across North America, Europe, India, Russia, etcetera. The new acquisition, once completed, will be somewhere around a US$300 million, so altogether it is US$600 million-plus and growing. So naturally, it's going to be an important part of the business. Likely, that we want to build on the platform of the NRT acquisition and to add more assets in the future. So, we see it as, obviously, a business that will speak in billions in the future, but obviously, it will very much depend, both, on the growth as well as our ability to buy more assets.

Do you think we can get to that billion-dollar mark with the existing assets - with the Nestlé JV, with the NRT assets, with MenoLabs and the existing base by fiscal '27, '28? Would that be a fair assumption, or do you think you need more to get to that billion-dollar number?

For the billion-dollar, we will need to buy more.

Okay, got it. And my second question is on the fourth growth lever that you mentioned, biologics. I think you've mentioned denosumab is a near-term opportunity. We also have abatacept. If you could give us some color on the timelines for filing of these assets. And therefore, when should we expect launch of both these products?

You are talking about denosumab?

Denosumab and abatacept.

So, denosumab is next year. And what are the other products that you asked, sorry?

Abatacept.

Abatacept should be December '26, hopefully and depends on the approvals or max beginning of '27 calendar.

Sorry, December’26 is the filing?

So, filing should be at least a year before that.

Sorry, Erez, I missed that. So you said abatacept filing should be in '25?

Abatacept filing should be in the end of calendar '25. And launch should be in the end of calendar '26, assuming approval on time.

We have our next question from the line of Amey Chalke from JM Financial.

Thank you for taking my question and congrats on a good set of numbers. The first question I have on the US business - for the quarter, we have seen a good quarter-on-quarter jump, almost US$50 million to US$60 million. Is it possible for the management to give some breakup? How much would be contributing from the new product launches, which we have recently done? And how much would be from the base business improvement?

So most of it is from the base business. Most of it is the products that we had before and the contribution of the three products helped the growth, but the lion’s share of the growth came from products that we had before.

So, going ahead, how should we think of the quarterly US run rate? Is it normalized from here or do you expect it to maintain at US$450 million?

No, what I'm expecting from the US is to continue to grow. So I, kind of, maintain the discussions that we had in the past. We have the capability - and I'm excluding even lenalidomide in this kind of discussion - to grow in single digit, meaning, to compensate for any price erosion on a year-to-year basis. That's what we did in the last six years and this is what we are going to do. And, from time to time, we have those upsides that come to us, like ‘first-to-market’ or specific situations. Right now, it looks like that the North America activity should continue to grow throughout the year. Quarter-to-quarter, it's hard to tell. It's always fluctuating. So I cannot guide on quarters, but I can absolutely say that we are going to continue to grow throughout the years.

Sure. The second question I have on the India business growth which is around 15%. In the opening remarks, we said that some of it is coming from the vaccine business which we acquired. Is it possible to quantify how much will be the base business growth?

Yes. So, let's say, without the vaccines, it's probably mid-single digits, without it.

Sure. Thank you so much. I will join back the queue.

Thank you. We have our next question from the line of Damayanti Kerai from HSBC. Please go ahead.

Hi. Thank you for the opportunity. Continuing on India, so, I just want to understand now, Sanofi vaccines contributed meaningfully in your India numbers. Is this the current base which we should assume? Like you will be growing from the base of 1Q in coming quarters or how should we look at India growth in near term as well as in medium term?

The baseline of India, without acquisitions, will be double digits this year.

Okay. And this base business, you said, it grew in single digits during the quarter excluding the acquisition.

It was mid-single digits and it will be double digits for the year and for sure, for the next quarters.

Sure. And can you update us on Nestlé JV - how that is progressing?

Progressing very nicely and we hope that in the beginning of August we can announce ‘Day 1’, likely, August 1st, but we will announce when it will come.

In August?

August 1st.

Okay. And my second question is on your biologics effort. So can you let us know, what is the kind of spend you are doing for this line of business and you earlier mentioned meaningful sales could be starting from '27, right? So between now and '27 if you could just talk on the cost part for your biologics effort?

Yes. So, on Biologics, we have just maybe just to frame what we call biologics in the company. We have biosimilars, which is about, I think, if I'm not mistaken, 20% of the R&D and about 10% of the capex. In addition to that, we are ready to scale-up our CAR-T, to launch in India. And we are working on that as well - they would normally not classify, I'm assuming that you asked me about the biosimilars, but this is also a very, very important activity for us. In addition to that, we are engaging in licensing-in for various markets. So, we mentioned denosumab already, but we have also local activities in which we are licensing products for specific markets, especially in Emerging Markets. Likely, that until the end of the decade, we will have a significant number of deals that we are working on for those markets. And then after denosumab, the next global product for us will be…and Rituximab, of course, that we got recently the approval of Europe, and we hope that we will get later in the year, for the US…we will have abatacept, like I mentioned to Neha before, likely in the end of '26, beginning of '27.

Okay. And all these products which are coming, say in '26 and beyond, you will be marketing on your own, right, or the way the previous two products has gone through partners?

Besides Rituximab - there's a partnership with the Fresenius - the rest, we will do by ourselves, including United States.

Okay, Erez. Thank you for your response.

Thank you. We have our next question from the line of Tushar Manudhane from Motilal Oswal Financial Services.

Ya, thanks for the opportunity. Just, again, on the North America sales, on the base portfolio which is like ex-Revlimid, as you highlighted, the price erosion is in the range of high single digit. And despite that the sales pegged year-on-year or even quarter-on-quarter, there has been a very reasonable jump. So, just to understand, if there was any specific product opportunity because of a product shortage or some competitor going away or how to think about the base business and the sustainability of run rate?

So, first I did not mention the number that you are saying. So, please don't quote me, because I did not say it. Second, yes, it is going to be consistent and we see that the growth is not from a particular product. It's actually multiple products, primarily because of the great service that we are giving in United States to customers.

Got it, sir. And on the India base, sir, the growth has been quite moderate, ex Sanofi. So how do you think of scaling up this growth?

As I mentioned, the growth will be double digits, even without inorganic and the inorganic will be on top of it.

All right, sir. Thank you.

Thank you. We have a next question from the line of Surya Patra from PhillipCapital India Private Limited. Please go ahead.

Thanks for the opportunity and congrats for the great set of numbers, sir. Sir, my first question is on the Aurigene biologics facility what we have inaugurated, how big is the investment there? And also I wanted to understand, is it for the biosimilar pipeline what we have created by Dr. Reddy's or it is targeted towards the CDMO opportunity that we have been talking about? So, if you can give some clarity on this?

Yes, that specific investment is for the CDMO activity of the biologics for Aurigene. So that's the primary purpose of this. The level of investment is a few hundreds of crores, I don't remember exactly how much.

Few hundred crores, you said, sir?

Yes, in terms of capex.

Okay. See, generally in the CDMO business, many times we find that it is backed by some contract or some association or some kind of collaboration with our target parties. So is it as of now currently backed by that and when do you think that regulatory clearance of this plant that one should expect?

So it does, we do have contracts that pay for this investment. These are all early stage projects that come from innovators. So it doesn't require now any specific regulatory activity. Naturally, if it will continue with this kind of traction, we will need to have a scale up and then discussion and this will come probably later through the years. Right now, it's primarily for R&D activities. So it's more of the ‘D’ of the CDMO, rather than the manufacturing.

Okay. And my second question is on the volume share rise, as per the settlement in case of Lenalidomide, whether you have seen that volume share rise, which was indicated as part of the contract, sir?

The product is growing exactly in accordance to the contract. The volume is impacted primarily by the type of agreement and less about capturing market share or anything like that. And so far so good. We are selling the product exactly in accordance to the contract.

Sure, sir. Just one small clarification. With regards to the freight cost, in what you have mentioned Parag sir, so how serious and critical is this cost issue? It did for the quarter and is it fair to believe that this is likely to continue at least in the next couple of quarters, the way the trade is happening with US and China?

So most of it is related to, obviously, the conflict in the Middle East. We need to circle Africa and in some of the cases, because of the timeline, we need to fly material, instead of shipping it by sea. So obviously, this is the primary issue. So obviously, I wish I could know by when this conflict will end, hopefully it will end. But yes, the impact is a few times, of course. I don't remember exactly how much but that's the impact.

Okay. Is it fair to believe that less than 1% kind of swing sequentially what we have seen in SG&A. Large part of that is because of this freight cost.

I will not say large part. It should be around Rs. 50 crores or Rs. 60 crores or something like that. So I don't think large part. The main part is investment in capabilities and new products and new business initiatives. We are leveraging the fact that, if you recall our previous discussions, we want to be, give or take, it's never that accurate, in the sweet spot, in which we are delivering enough for the shareholders but also investing in the future. So we are absolutely using the opportunity to invest more in the business, whether its R&D or capex or new businesses. And the SG&A, if you wish, the lion part is there. But yes, also freight cost and other one-offs are also there, like Parag mentioned.

Thank you, sir. Wish you all the best.

Thank you. We have our next question from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead.

Good evening and thank you for taking my question. Well, we are generating about, whatever, 220 to 230 to 240 million per quarter in terms of cash flow in a quarter. We have about a billion dollar of cash and cash equivalents. We're going to pay for this NRT, which I think the upfront payment will likely be happening. But even after that, we seem to have lots of cash and cash flow generation. So I just want to understand in the next 2, 3 years, the areas where will we likely be investing. So, all I was asking about capital allocation and a billion dollars of cash and cash equivalents and probably cash flow generation of 200 million per quarter. We'll likely pay for the NRT therapy coming up next. But even after that, we are going to have significant cash and cash flow generation. So the question is around the 2 to 3 years which are the areas we're going to likely continue to invest. I believe Erez, in your comments on India, you said that excluding acquisitions, we'll grow double digits. So maybe in India, which are the areas we are likely to look at, as well.

Yes. So thank you for the question. Indeed, a very important strategic, question. First, we believe that we have about US$2.5 billion that we can invest inorganically. That depends, of course, on the time, but we have enough financial capacity without even changing dramatically ratings or anything like that. Actually, it should not impact the rating at all. We want to invest in each one of the four spaces that I mentioned. We do want to invest in our B2B generics, in our innovation, in our consumer care, as well as in biologics. The primary way to use it is less of mergers and acquisitions and more about collaborations, licensing, and from time to time, we will buy also assets or rights to the assets. So our preference is to have access to product or products that are complementary to our portfolio that allow us to be in a very comfortable, strategic position, in each one of the segments and each one of the geographies. Largely, we are aiming for a high level of IRR and for sure, better than the cost of capital that we have for the company. In addition to that, we are using the cash for internal activities. So, we are investing in capex, especially in the capabilities like biologics and CDMO and our injectables. We believe that we have a very interesting pipeline for the future, primarily complex injectables and primarily many peptide products. So, this is where the capital allocation will go. And we are building the growth of the next 5 years - '26, '27, etcetera - as we speak, and we are using the relatively comfortable financial position that we have now, in order to invest and to build that position for the future. Hopefully it addressed your question.

Thank you, Erez. Just one follow-up. In the past, in terms of deals in India, valuations have been a hurdle. Do you think our philosophy will likely change now, if you were to look at transactions in India? Recently, many of your peers have done, can I say, high valuation acquisitions? Is it something that Dr. Reddy's will be also willing to look at?

We are looking at all the deals in India. Just to be very clear, India was, is and will be, forever, a very important market for us and for sure, a very important country for all the activities of Dr. Reddy's. India is absolutely a focus and we are going to invest in India. We feel, the fact that the branded generics market is now single digit, plus the cost of capital went up over the years, and presently in this situation that if you have a cash transaction, at least, we don't see a reason to buy EBITDA in which only the interest that we will pay to the banks will be more than the EBITDA that we'll get. So, for this kind of transaction, we will not do. If the deal is better than our cost of capital, absolutely, we'll do it. And India will be absolutely a priority.

Got it. Thank you, Erez, and all the best.

Thank you. We'll take our next question from the line of Abdulkader Puranwala from ICICI Securities. Please go ahead.

Hi, thank you for the opportunity. My first question is pertaining to the vaccine business, what we have in-licensed from Sanofi. So could you just understand how the growth profile has been in this particular segment? And what are the kind of investments you will have to do to grow this business?

We acquired this business from Sanofi, as what we call the ‘bridge’. It's an anchor product, that will allow us to bring to the segments in the future, additional products. So, when we identify a space that we want to claim, we are trying to build what we call the ‘anchor activities’ that will allow us the capability - whether its product management, sales force, whether know-how of the product, etcetera. So, the intent is to buy, to grow it in the best way we can, the current business, but to add on it over a period of time, additional products that will come from licensing-in from other companies.

Okay. So, have we also taken some MRs, which will be pertaining to Sanofi who would now be in our payrolls? Or how is arrangement there?

We got also the sales people from Sanofi.

Okay. Thank you.

Thank you. We have a next question from the line of Jainil Shah from JM Financial. Please go ahead.

Thank you for the opportunity. So, my question is related to the NRT acquisition. So, Haleon, in their press release, have mentioned that the gross assets related to the acquisition of GBP413 million. So if you can explain why is it so high? And is it fair to assume that a large part of this would be goodwill.

See, I did not personally see the Haleon's balance sheet. So you probably need to ask them. I'm assuming that it's mostly intangibles.

Okay, thank you, sir.

Thank you. We have our next question from the line of Kunal Dhamesha from Macquarie Capital. Please go ahead.

Thank you for the opportunity again. I just wanted to understand, has there been any business impact from the Microsoft outage that was there last week for us?

No, zero effect on us.

Sure. And secondly, on the Nestlé JV, I didn't understand what will start from August 1st. I think we have incorporated JV as of now. But you are saying the operational activity will start from August 1st?

Yes. So, the ‘Day One’ is the day in which the JV will work together. And whatever we record will report and what we had until now plus what Nestlé used to have before it.

Okay. So it's basically adding our current products like Celevida, etcetera, into the JV is the way to understand it, right? And then yes, also Nestlé's products. Sure. And then I think the initial activities is to kind of customize the product, Nestlé's products, global products for Indian market, etcetera, right? For that, we'll have to invest. So this investment will be part of P&L investment? Or would this be more like Balance Sheet investment, which will capitalize till we commercialize those products?

So let me clarify, maybe. First to your first part, yes, the product activities and the other products that we have, we will add to it the Nestlé activities and both of them will be part of the JV starting from August 1st. As related to investments and all the stuff, the intent is, over time to bring additional brands primarily from Nestlé to the JV and to introduce them to India and to grow them. Specifically, at the very beginning, I don't participate the impact on the P&L, for sure, not in a significant way.

Sure. That's very helpful. And the last one from my side. I believe we also undertook the expansion of our biologics facility, right? So is that complete now? And with that completion, if you can help with the current capacities? Is it more than enough to cover us for the next 2, 3 biologics or biosimilar that we have in pipeline?

We are still investing in our Bachupally facility. The intent is to become something like 50 kilolitre in that facility. This probably will take us additional two years to reach that level. So you want to see additional capex in Bachupally, at least, for the next two years.

Sure. And 50 KL is the aspiration, as in like the future capacity? What is the current capacity?

I think 15, if I remember, 15 KL.

15 KL to 50KL. Perfect, thank you and all the best.

Thank you. As there are no further questions, I would now like to hand the conference over to Ms. Richa Periwal for closing comments. Over to you.

Thank you all for joining us for today's evening call. In case of any further queries, please get in touch with the Investor Relations team. Thank you once again on behalf of Dr. Reddy's.

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