Dr. Reddy's Laboratories Ltd. Sponsored ADR Aktie

Good day, everyone and welcome to the Quarter 4 and Full Year FY '26 Earnings Call of Dr. Reddy's Laboratories Limited. I'm Aishwarya Sitharam, Head of Investor Relations of Dr. Reddy's. Joining us today are members of leadership team, Mr. Erez Israeli, our Chief Executive Officer; and Mr. M.V. Narasimham, our Chief Financial Officer.

Our quarterly financial results have been published earlier today and are available on our website for your reference. We will start today's call with MVN providing an overview of our financial performance for the quarter as well as the year. Following that, Erez will share his insights on key business highlights as well as the company's strategic outlook. We will then open the floor for questions.

All commentary and analysis during this call are based on our IFRS consolidated financial statements. Please note that certain non-GAAP financial measures may also be discussed. Reconciliations to the corresponding GAAP measures are included in our press release. I would like to remind everyone that the safe harbor provisions outlined in today's press release apply to all forward-looking statements made during this call.

Before we proceed, I would like to call out a few housekeeping points. [Operator Instructions] The session is being recorded, and both the audio and transcript will be made available on our website. Please note that this call is the proprietary material of Dr. Reddy's Laboratories Limited and may not be rebroadcasted or quoted in any media or public forum without prior written consent from the company.

With that, let me hand the call over to MVN to present the financial highlights for the quarter.

Over to you, MVN.

Thank you, Aishwarya. Greetings to everyone on the call. It is my pleasure to walk you through our financial performance for the fourth quarter and full year FY '26. FY '26 reflected a resilient operating performance, delivering highest ever annual revenues amid product-specific headwinds and certain onetime impacts. The underlying base business continued to deliver double-digit growth for the quarter as well as for the full year FY '26. At the outset, I would like to highlight a few items impacting the quarter.

Number one, a shelf-stock adjustment or SSA related to lenalidomide of INR 453 crores taken as a reduction in revenue. Number two, an additional provision of INR 114 crores related to potential VAT liability in one of our subsidiaries included in SG&A expenses. impairment of INR 135 crores, including an R&D charge of INR 6 crores on account of discontinuation of R&D programs related to CAR-T therapy as part of the portfolio prioritization. Impairment of INR 93 crores on account of discontinuation of a trial by our partner, Immutep of an in-licensed asset following an interim futility analysis. The full year performance was further impacted by provisions related to potential VAT liability of INR 70 crores as well as the impact of new labor law code in India of INR 117 crores.

After factoring these items, the adjusted profit before tax was INR 994 crores for the quarter versus the reported number of INR 199 crores and for the full year, INR 6,463 crores versus the reported PBT of INR 5,482 crores. Now I would like to discuss the underlying performance in detail. Margins in this section are expressed as a percentage of the revenues before the impact of SSA, unless otherwise stated. For the reported figures, please refer to the respective earnings releases. All financial figures in this section are translated into U.S. dollars using a convenience translation rate of INR 93.83, the exchange rate prevailing as of March 31, 2026.

Excluding SSA, the adjusted revenue stood at INR 7,969 crores, which is USD 849 million for the quarter, a decline of 6% year-over-year and 9% on Q-o-Q and at INR 34,046 crores, which is USD 3.63 billion for the full year, representing a growth of 4.6%. The decline was primarily on account of lower lenalidomide sales, while the base business, excluding lenalidomide, delivered double-digit growth on a year-over-year basis. We expect the base business to sustain its growth momentum in the year ahead. The gross margin on the adjusted revenue base after excluding the one-offs for the quarter was at 48%, lower by 760 basis points on year-over-year and 615 basis points on sequentially and at 53.5% for the year, lower by 498 basis points on year-on-year.

The decline in margins was largely on account of lower lenalidomide sales and price erosion in our unbranded generics businesses. The gross margin for Global Generics was at 51.7% for the quarter and 57.4% for the year as a percentage of its adjusted revenues, while for PSAI stood at 19.9% for the quarter and 17.2% for the PSAI for the fiscal on its reported revenues. Given our focus on the cost efficiencies and productivity improvement, we expect the margins to improve and be above 50% in FY '27. Excluding one-off provisions mentioned earlier, SG&A spends were at INR 2,662 crores for the quarter, an increase of 11% on year-over-year and 1% sequentially and 33% of the adjusted revenue base and INR 10,435 crores for the year, an increase of 11% on year-over-year and 31% of the adjusted revenues.

The increase was primarily on account of ongoing targeted investment to support long-term growth of our branded franchise, namely the acquired NRT Consumer Healthcare business and branded generics. We expect the spend to be around the same level as FY '26 for the year ahead. The adjusted R&D spend for the quarter was INR 541 crores, a decrease of 26% year-over-year and 12% on sequential and a margin of [ 6% ] of adjusted revenue. For the year, the spend, excluding onetime labor court-related provision was INR 2,385 crores for FY '26, a decrease of 13% and 7% adjusted revenues. The decrease reflects reduced biosimilars developmental expenditure as a significant portion of investments related to Abatacept has been completed. We expect the spend to be in the range of 7% to 8% in the fiscal ahead.

The increase was primarily on account of ongoing targeted investment to support long-term growth of our branded franchise, namely the acquired NRT Consumer Healthcare business and branded generics. We expect the spend to be around the same level as FY '26 for the year ahead. The adjusted R&D spend for the quarter was INR 541 crores, a decrease of 26% year-over-year and 12% on sequential and a margin of [ 6% ] of adjusted revenue. For the year, the spend, excluding onetime labor court-related provision was INR 2,385 crores for FY '26, a decrease of 13% and 7% adjusted revenues. The decrease reflects reduced biosimilars developmental expenditure as a significant portion of investments related to Abatacept has been completed. We expect the spend to be in the range of 7% to 8% in the fiscal ahead.

Other operating income for the quarter was INR 344 crores as against INR 247 crores in the corresponding quarter last year and INR 763 crores in FY '26 as against INR 436 crores in FY '25. The increase during the quarter was largely on account of divestment of noncore brands in India business for net of INR 189 crores. The underlying EBITDA, including other income, stood at INR 1,554 crores for the quarter which is USD 166 million, a decline of 37% on a year-over-year basis and 28% sequentially and reflecting a margin of 19.5% of the adjusted revenues. For FY '26, the EBITDA adjusted one-off was at INR 8,419 crores, which is $897 million that is like 24.7% on the adjusted revenue base. Impairment charge for the quarter was INR 259 crores as compared to INR 77 crores during the same quarter last year.

The higher charge this quarter was largely on account of discontinuation of [ CAR-T ] assets and partnered product Eftilagimod Alfa, as mentioned earlier. Impairment charge for the year, INR 352 crores as compared to INR 169 crores last year. The net finance income for the quarter was INR 62 crores versus INR 235 crores during the same quarter last year and INR 413 crores for FY '26 versus INR 472 crores for FY '25. The decrease was primarily on account of lower foreign exchange gain in comparison to the corresponding period last year. As a result, the underlying profit before tax was at INR 994 crores, that is USD 106 million, representing a margin of 12.5% and for FY '26 at INR 6,463 crores, that is USD 689 million, a margin of 19%.

Effective tax rate for the quarter was negative of 10.8% compared to 20.8% in the corresponding period last year. While for FY '26 ETR was at 22.5% versus 25.4% in FY '25, the ETR for Q4 FY '26 was lower, primarily due to recognition of a deferred tax asset on carryforward losses in one of our subsidiaries and a favorable jurisdictional mix for the quarter in comparison to the same period in the previous year. We expect the ETR to be 24% to 25% for fiscal FY '27. Profit after tax attributable to the equity holders of the parent for the quarter stood at INR 220 crores, which is USD 23 million, a margin of 2.9% on the reported revenues and for the year, INR 4,285 crores, which is USD 457 million, a margin of 13% before adjusting for one-off items mentioned earlier.

Based on the company performance, the Board recommended payment of dividend INR 8 per equity share of face value of INR 1 each. This is equivalent to 800% of the face value for the year ended March 31, 2026, subject to approval of the shareholders of the company. Diluted EPS for the quarter, INR 2.64 and INR 51.42 for FY '26. Operating working capital as of 31st March 2026 was INR 14,434 crores, which is USD 1.54 billion, an increase of INR 2,920 crores, which is [ USD 311 million ] over 31st December 2025. CapEx cash outflow for the quarter stood at INR 438 crores, which is USD [ 47 ] million and INR 2,302 crores, which is USD 245 million for FY -- free cash flow generated during the quarter before acquisitions related payout was INR 600 crores, which is USD 64 million and INR 2,004 crores, which is USD 214 million for FY '26. As of March 31, 2026, we have a net cash surplus of INR 3,271 crores, which is USD 349 million.

Foreign currency cash flow hedges executed through derivative instruments during the period are as follows: USD 462 million hedged using a combination of forwards and risk reversal options scheduled to mature by March. These contracts are hedged at rate of [indiscernible] per U.S. dollar, RUB 1.6 billion hedged at a fixed rate of RUB 1.12 for Russian ruble with maturity falling within the next 3 months. With this, now I request Erez to take us through the key business highlights.

Thank you, MVN, and good day, everyone. We appreciate your participation on this call today and value your continued interest in our company. During the year, we remain focused on advancing our 2-pronged strategy of strengthening the base business while investing in our future growth drivers across peptides, biosimilars, consumer health and innovation.

Our FY '26 performance reflected consistent disciplined execution of our strategic priority, namely scaling the base business, advancing our key pipeline programs, semaglutide and abatacept and targeted business development efforts to support our growth ambitions while continuing to enhance efficiency across operation. I'm pleased to report that the first quarter -- in this first quarter without one of our key products, lenalidomide, the company delivered an EBITDA margin of around 20% after adjusting for certain items indicated by MVN earlier. Launches of products offering meaningful opportunity, [ BD ] and continued cost optimization efforts will take us closer to our aspirational 25%. For FY '26, the adjusted EBITDA margin was in the neighborhood of 20%, consistent with our stated aspirations.

Further, the underlying base business delivered double-digit growth in Q4 as well as for the full year of FY '26. All geographies besides North America recorded double-digit growth, while performance in North America was impacted due to lenalidomide sales and onetime shelf stock adjustment related to this product. Let me now walk you through some of the key highlights of the quarter. In line of our strategic priorities, we made progress on our key pipeline assets, semaglutide and abatacept during the quarter. We are pleased to announce that Dr. Reddy's became the first company to secure regulatory approval of semaglutide injection for type 2 diabetes in Canada, reinforcing our in-house expertise in peptide science and complex product development.

Likewise, as the first company to receive approval in India for the same product in November last year, we successfully launched our brand Obeda on day 1 of market formation about patent expiry in India. Our oral version of semaglutide has been approved by the CDSCO in India. We continue to engage with ANVISA in Brazil to address its concern related to our generic semaglutide filing and remain committed to making this important therapy available to patients across several markets, subject to approvals. Further, in February 2026, the U.S. FDA accepted for review our BLA for the intravenous IV presentation of abatacept biosimilar candidate following its filing in December 2025.

Aligned with our strategic focus to bring innovation to patients in India, we already in hormone replacement therapy segment with the acquisition of Progynova and Cyclo-Progynova in India. Our partner product, COYA 302 received fast track review status. In addition, the operational integration of our acquired consumer health care business in nicotine replacement therapy is now largely complete. On the regulatory front, in March 2026, the U.S. provided the VAI classification for our formulation facility, FTO-SEZ in Srikakulam, Andhra Pradesh following a GMP and pre-approval inspection, PAI in December 2025. We continue to build on our leadership in sustainability. Dr. Reddy's was awarded the gold medal for EcoVadis for FY '26, achieving its highest ever score of 80, placing us among the top 5% companies assessed globally.

During the quarter, we were named by the Business World among India Top 5 sustainable company, ranking first in the Indian health care and pharmaceutical industry for '24 and '25. We've been recognized in the leadership category of 2025 Indian Corporate Governance Card for the third consecutive year. Let me now take you through the key business highlights for the quarter and the full year. Please note that all financial figures mentioned are reported in their respective local currencies. Our North America generic business reported revenue of $199 million for the quarter and $1.3 billion for FY '26. Excluding onetime shelf stock adjustment, revenue were $251 million for the quarter, a decline of 40% and 26% sequentially at $1.36 billion, a decline of 21% year-over-year.

The decline was primarily on account lenalidomide. During the quarter, we added 7 new products to our portfolio, taking the annual of total 25 products. We aim to continue to launch momentum in the fiscal ahead. Our emerging markets reported revenue of INR 1,806 crores in Q4 FY '26, reflecting a robust growth of 29% year-over-year and a decline of 5% sequentially and INR 6,761 crores in FY '26, a growth of 23% year-over-year. The growth was led by new product launches across markets and higher volume particularly in rest of the world, further aided by favorable currency movements. During the quarter, we introduced 49 new products across countries, taking the FY '26 total to 129. Within this segment, our Russia business reported a growth of 8% year-over-year and a decline of 23% sequentially in constant currency terms.

Our India business posted revenue of INR 1,566 crores in Q4 '26, delivering a robust double-digit year-over-year growth of 20% and a decline of 2% sequentially, while the full year revenues were at INR 6,219 crores, year-over-year growth of 16%. This performance was largely driven by revenues from our innovation franchise, new brand launches, price increase and volume growth. IQVIA data as of March 31, 2026, shows that we continue to outperform in the Indian pharmaceutical market, IPM, with a moving quarterly total growth of 15.2% compared to IPM growth of 11.6% and moving annual total MAT growth of 12.1% compared to IPM growth of 9.9%. Our IPM rank stood at 9 for the quarter and 10 for the year.

We launched 10 new brands during the quarter and 28 over FY '26, reflecting our continued focus on strengthening our domestic market presence. Our European business, which includes our acquired consumer health business in nicotine replacement therapy, posted revenue of $136 million for the quarter, a decline of 3% on a year-on-year basis as well as sequentially and $542 million for FY '26, reflecting an acquisition-led growth of 37% year-over-year. The decline this quarter was primarily on account of price erosion in generics. During the quarter, we launched 7 new generics products across market, taking the full year total to 38, further expanding our European product portfolio.

Our PSAI business reported revenue of USD 101 million in Q4 FY '26, resulting in a decline of 10% year-over-year and a growth of 10% sequentially. The decline was primarily on account of lower API volume uptake during the quarter. During the quarter, we filed 48 Drug Master Files globally, taking the total number of filings to 128 for the year. Looking ahead, we remain focused on delivering on our strategic agenda of strengthening our core business while building future growth drivers. Underpinning this strategy is future-ready organization structure aligned to our business model with dedicated leadership across global generics, biologics, consumer health and innovation, enabling sharper focus, relevant capabilities and more effective execution across each growth pillar.

Within this framework, we will continue to advance our differentiated pipeline programs such as semaglutide and abatacept, drive operational efficiency and pursue value-accretive inorganic opportunities that support sustainable long-term stakeholder value.

With that, I invite your questions as we move into the Q&A sessions.

Thank you very much, Erez. [Operator Instructions] The first question is from the line of Neha Manpuria from Bank of America.

Just wondering on the shelf stock adjustment that we had in the quarter, a $50 million number for a product like REVLIMID where we knew that the patent cliff is coming seems very large. So if you could just give us some color in terms of why the shelf stock adjustment was so large, given that we knew we're expecting competition in Jan.

We were also surprised by that. It was not part of any arrangement or anything like that. I cannot speak on the details on the relationship with the customers, but it came from them, I guess, certain planning issues or mistake at their end, and that's the outcome of it.

Okay. Understood. And my second question is on semaglutide. Now that we have Canada approval, I think we had mentioned a 12 million unit sales across markets in FY '27. Erez, in your view, what could be the competitive landscape now that Reddy's and the second player have gotten approval? When do you expect more players? And out of the 12 million, based on your assessment, what would be the rough breakup between, let's say, Canada and [ EMs ]?

So I believe that -- so the current landscape of basically Novo Nordisk as well as the two of us will stay there probably for several months. And then likely that others will come. I believe that the market in Canada is give or take. It's about 1/3 in -- for what we call public, 1/3 cash and 1/3 what they call private. So it's a kind of public, private cash. So what I believe will happen is that the reimbursement price will go over time as expected. The launch quantities at least in a couple of years, we should be very, very healthy. Obviously, I cannot say, but it should be very, very healthy.

And given that we have had a setback in Brazil, are we still confident of the 12 million units sale for sema in fiscal '27? Or do you think that would depend on us getting approval in Brazil as well?

So Brazil will be -- is part of it. I believe it's still in that number, but the number moved by several months. So if -- we are still -- I'm still with the same number, but probably it will have like 12 months that will probably result in somewhere in the beginning of FY '28 as well. Specifically, for the next, let's say, until the end of calendar '26, I believe that the number is somewhere between 6 million to 7 million units.

This is for calendar '26?

No, this is for the markets that will get approval and Canada will be obviously a big part of it. But it will be -- this is give or take the numbers.

The next question is from the line of Damayanti Kerai from HSBC.

Continuing on semaglutide. So Erez, just to clear, the 6 million to 7 million units, which you expect to market, it's by end of this calendar year, right, by '26?

Correct.

Okay. So can you talk a little bit about your pricing strategy in the market where you'll be coming in, say, another 12 months? And specifically in Canada, after entry of second generic, how do you position yourself versus Novo Nordisk pricing?

So our list price will be give or take, about half of what Novo Nordisk will be. So that can be shared because it will be listed. Obviously, the rest is arrangement that we have with the customer that we will not be able to disclose, but let's say, it will be the normal arrangement that you normally have. The -- in terms of I'm not sure I captured -- sorry, the rest of the question, sorry, I lost it. Can you remind me?

Yes. I was asking about the pricing strategy in all the market, where do you intend to come in, say, another 12 months or so, 12 to 15 months.

Sure. So we believe that the -- all the prices will be let's say, in the neighborhood of, let's say, $30 plus. Why I'm saying that number also is because in some markets, we are going to work with the partner and that reflect the net price that we have for them. Obviously, they will have their margins. And these numbers may go down if the competition intensified, but I don't envision it to -- at any case to be below $25.

Okay. So somewhere $25 to $30 per unit is the price you are working with?

And there will be market obviously, that it will be much more than that. But I just wanted to share with you the kind of the neighborhood of the floor area. Obviously, we are planning to have in markets also prices that are much higher than that.

Okay. That's helpful. My second question is on SG&A spend. So you mentioned next year -- sorry, this year, FY '27, it could be similar to what we had in FY '26. So just wanted to understand in NRT or some of the initiatives which you had started a few years back, you have been spending for last few years, if I may say. So where you are looking for investing more? And this number, do we have any room to take a cut or see any reduction there? So if you can just talk a bit on that part.

Sure.

So we will have absolutely places that will have less and we'll have places that will have more. But just to address, the NRT is a place in which we will have more. At the same time, the growth will more than finance it. So the level of profitability of the asset will stay the same and even maybe grow. But in terms of SG&A per se, we will have more. In the -- we are also launching innovative products in India and in certain emerging markets. And naturally, we are investing in the marketing of those new products.

At the same time, we are putting a lot of productivity activity, sales force excellence as well as additional marketing excellence program and this will go up. So that's why we said that give or take, in terms of nominal value, it should be the same level as sales will go by in percentage-wise, it will go down. But in terms of -- to understand the range of the spend, it will be about, give or take, the same range that we have now.

In nominal terms, right? Yes.

While, of course, the sales will go double digit up.

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

Firstly, on gross margins, even after adjusting the shelf stock for the quarter, it is 48%. While ex lenalidomide also we have talked in the past that the gross margin has been 50% plus. So is there anything which I've missed as far as gross margin for the fourth quarter is concerned?

So this quarter is -- there is a product mix impact. That's why it is at 48%. We believe our gross margin range is in the range of 50% to 55%.

So what will drive this in the subsequent quarters? And are you including semaglutide sales for this gross margin?

Yes, semaglutide sales, of course. And then there is a cost improvement -- product cost improvement programs also are on considering what the new products we are going to launch in FY '27, including semaglutide plus product mix. Considering all these things, I think certainly our gross margin will be 50% or above.

I just want to make sure that we are planning to launch also products like semaglutide, tofacitinib, sitagliptin, [indiscernible], sorry for my reading. And -- yes. So in addition to that, there are additional key products to do. So the mix of the product, the mix of the market as well activities that we are taking now on our APIs, we are very confident about our ability to manage the gross margins.

And just on these products, which you mentioned, sir, so currently, U.S. revenue even after including the shelf stock adjustment, it is $236 million. So effectively, maybe $944 million, if I normalize that. So will we sort of grow over and above this ex semaglutide in FY '27?

We will absolutely grow in North America, ex lenalidomide in double digits.

Got it, sir. And just lastly, for India market, if you could just share what has been organic and inorganic growth for the quarter?

It's organic. What do you mean inorganic? We did not -- licensing and consider organic or inorganic...

Brands, what we acquired is not a significant impact in this quarter -- just recently acquired brands.

Just to clarify, we consider if we license a product from China, and we are launching it in India as organic. In this terminology, it's mostly organic. It's let's say, the inorganic is neglectable.

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

Could you give an update on the status of denosumab and Orencia, abatacept?

So denosumab will launch in Europe, and we are waiting for approval in the United States. Our partner has a deficiency letter that they need to address for the United States. Abatacept, the IV was approved for review. So it was accepted. And so it's going after the time lines. And we are also awaiting an FDA inspection in Bachupally, Hyderabad for the same. So the abatacept so far in the right direction. And then, of course, we are working on the subcu that will be submitted later and also will be launched later as we discussed in the past.

Got it. So the IV is online for potential launch this calendar year?

IV will be likely at the beginning of calendar '27. Hopefully, this fiscal -- only hopefully in this fiscal, that's the plan. But of course, we need to see the approval for that. But right now, that's the plan.

Got it. And do you expect denosumab in the U.S. before that?

I don't know. It depends on the ability of [ Alvotech ] to get approval.

Got it. Second on -- you said that you have wound down your CAR-T-related investments and taken a write-down. Could you just tell us a bit about what your investment was and why it failed in that area?

No, the investment, give or take, is what we -- MVN guided it's INR 150 crores...

INR 135 crores...

INR 135 crores. That's what we took down. We saw that we have issues with the clinic and we decided to kind of deprioritize it at this stage. And we just impair it as per appropriate accounting. But this is, give or take, what we invested.

Sorry, I got the figures, but my question was more technical. Do you -- is it something wrong with the specific product you used or with the technology itself?

I'm not sure I understand the question. It's what we invested in the clinical trials and getting the products. Yes.

But products, okay. So your product doesn't work, but CAR-T technology as such is...

I don't know what is -- the product is the CAR-T, sorry. So -- yes.

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

So my first question is on the biosimilar business. So what is -- since it is a closure of the -- I mean the fourth quarter of the year and full year data is there. So just wanted to have a sense what is the size of the biosimilar right now? And whether it is already broken even or it is loss-making? If not, then what is the time line for the breakeven for this business?

So overall, our global biologics sales is about -- it is not very high. This is above 100 million sales. So at this sales, certainly, whatever investments we are doing for the development of abatacept, other products, pembro also we are with [ Alvotech. ] So definitely, it's not a breakeven. Once we launch abatacept, certainly, I think post that, I think certainly we can see the breakeven.

FY '29, sir?

It is in -- certainly it could be in -- like I said, if abatacept, everything goes well, our inspection, everything, and we'll be launching in calendar year 2027. That would be like FY '28.

Okay. Second question was on the NRT. Two things here, observation-wise. So last two quarters -- since last two quarters, we have been seeing a strong growth. Last quarter, it was 25% Y-o-Y growth. This quarter, it is around 16%, so what is driving this growth and whether this is sustainable one? And secondly, fourth quarter, is there any seasonality? Because last year also, there was a kind of a sequential decline that we had witnessed for NRT?

So the NRT business is indeed growing more than we expected it to be. So we expect it to be kind of mid-single digit is certainly more than that. Specifically for the 16%, so there is some impact of the fact that in the transition, some customers take more stock. So it's not fully, let's say, in that respect, sustainable. But I believe that the right place for it is either high single digit or even low double digit, we will be somewhere in this neighborhood.

Okay. Just last one point, sir. What is your experience about the semaglutide penetration here in India? Because generally, it is understood that of the target patient population for weight loss application, let's say, the penetration is very low. It is around 2% or even less than 2%. So what is the trend that you are witnessing here in India in terms of the penetration of semaglutide?

Yes. So I don't recall exactly the market share, but so far, it's a great launch.

So we -- I think our market share is about 10%, more than 10% on a stand-alone basis.

Okay. In that light, are we talking anything about the growth for the domestic business?

I believe that it will grow plus in the next coming days, we will launch also the oral product. So the combination of both should be -- should give us a very healthy growth.

The next question is from the line of Lavanya Tottala from UBS.

Just one question from my side. So even after adjusting for SSA in U.S.A., sequential decline of 25% Q-o-Q despite having limited REVLIMID in Q3 seems quite high. So am I missing something? Is there anything other which is one-off here?

In Q3, we had a little bit sales, right? This little bit sales. Yes. Hence, I think definitely from Q3 to Q4, there will be a natural decline.

So I don't think -- we don't see a pattern of a loss of market share or price erosion or anything like that. There is -- there could be that there were certain buying patterns by some customers. But overall, it's very consistent the way we see it. So the primary difference between the quarters is linear.

Okay. So the one which is adjusted for SSA in Q4, one can consider this as base sales for U.S. from here on. Is that the right way to look at it?

Yes. I will not come because I don't know exactly the origin of the SSA specifically. But let's say that if you look, there might be some customers that bought a little bit more as per their patterns of acquiring products in terms of dates and stuff like that. But overall, if you look at market share prices, this kind of stuff, it should be about the same.

And also, this is -- one, we will be also going to new launches. Today, this is from the existing products and then going for the rest of the year, we'll be launching like 27 new launches overall for the full year.

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

Sir, just one question on [ SEMA. ] If you can indicate when you expect approval in Brazil? And what are the key market approvals that you're looking at? And you mentioned, I think, 6 million or 7 million units for this calendar year. What's your expectation for the full fiscal year FY '27?

Yes. So the additional markets besides, of course, first of all, we are expecting to get approval also in Brazil. We have a partner in Brazil that is also there, and we got also [indiscernible]. So we hope to get approval to our clone product that is there. And in parallel to that, of course, we are seeing approval for our initial submissions. So we will be in Brazil. Probably, I don't know if it will be 3 months delay or 4 months delay, but that's still the expectations. In addition to that, you have markets like Turkey. And then you have a bunch of relatively high number of smaller markets that we have a partner that will probably serve like in Latin America or in Southeast of Asia because altogether, we are planning in this calendar to launch in more than 50 and 12 months in more than 80.

So in terms of number of markets, but many of them, we will do it with a partner that will do it for us. So between the -- what we call the B2B in which we are selling to the partners or selling ourselves directly, we probably will be in a pace of 3 million or 4 million pens per quarter. So if you add to that, it will come to around 10 or 11, close to the 12 that we discussed last time, give or take one month. So we are still in the same neighborhood, but with the delay of the few months that took those approvals.

Understood. And just one question on U.S. generics. I think if I heard you right, are you expecting 27 launches? And you actually mentioned a few of those products. It looks like most of them are very competitive. Are there any chunky large product opportunity in the U.S. outside of abatacept that you expect in fiscal '27?

I believe that Bosutinib can be a nice product. And I agree with you about that most of them will be competitive. I fully agree with that. But overall, it should give us a double-digit growth without lena.

The next question is from the line of Abdulkader Puranwala from ICICI Securities.

In the interest of time, we will move on to our next participant, and we'll come back to Abdul, once he's able to unmute. The next question is from the line of Vivek Agrawal from Citi.

I just want to understand, out of this 3 million, 4 million pens per quarter, how much of this capacity that you are going to sell directly? And how much of the sales you are expecting through partners, et cetera? If you can help us understand.

It's -- if I need to guess, and I must admit that I did not do kind of calculation. So top of my head, I will say 50-50, give or take, in the neighborhood.

Understood, sir. And one question on North America. If you look at in this quarter, we have done close to $250 million kind of revenues. And it is again close to pre-Revlimid levels, right? So in the last 3 years, we have launched many products, but the U.S. revenues haven't moved up much. So is it fair to assume that there is a price erosion in some of the major baseline products in the U.S.? And how to look at overall profitability of the U.S. business? Is it still lower than pre-development levels? Or is it basically almost similar?

Yes. So first, obviously, there was -- in this period of time, there was price erosion. And what it tells is that market share and new products, give or take, covered, I see it as a kind of very low single-digit growth, not flat. But I mean in agreement with you that market is not growing as the other markets that we have that are all growing in double digit. Moving forward, this year, again, without Lena, we will see double-digit growth. And going forward, the main growth in the United States will come from biosimilars, consumer health as well as certain 505(b)(2). So over time, the business will diversify itself. But right now, it's mostly generic products.

Understood. So the double-digit growth that you are highlighting for this year, that includes Sema in Canada, right? So I'm just trying to understand how to look at only the U.S. sales. So what kind of the growth you are expecting in the U.S. business ex Lena this year?

Yes. So it's ex Sema. It's not with Sema. Sema is on top.

Vivek. The next question is from the line of [indiscernible].

I had two questions. Number one, sir, when you look at the next year, I think you have given the breakup of the costs by line items. But given that the base business right now is at, call it, 19%, 20% margin, where do you see the overall margin for the business with Sema, et cetera, in the next year and the year after versus our target of 25%.

Yes. So we are planning to maintain the base without Sema at around 20%. So this is the plan. And then the Sema is supposed to help us to get more than that. Now it obviously depends how much we will be able to sell and what price and what will be the mix because I shared already that it will be a range of price that can go, let's say, between, let's say, 30 or 25 to 30 all the way to 70. So obviously, there will be a range of prices. But let's say, with Sema, it should be close to the 25%, but maybe a bit less, depends on how much Sema we will sell.

Understood. And sir, any thoughts on the number of pens that you can possibly sell in F '28?

FY '28 potentially, we will have a lot of capacity because we will be able to qualify in addition to the current cartridge suppliers that we have today, we will be able to qualify also our capacity of [ FQ11. ] So to the -- so it will -- it can be any number. Let's say it can be north of $40 million or so. But right now, I don't see a demand for this hopefully...

The next question is from the line of Alok Dalal from Jefferies.

One quick clarification. It is on semaglutide in Canada, has the innovator Novo already introduced an [ AG ] in the market?

Sorry, can you repeat?

In Canada, has Novo already introduced an [ AG ] in the market?

So I know that they are offering. I don't know if it was already sold. I don't know you -- personally. I don't have a knowledge for that. But we are assuming that they will have. That's my assumption.

All right. So in that scenario, will it be a 3-player market and lead to 75% discount to the innovator product? Is that the way to think?

I don't think so in that way because the market is divided to public cash and private. And what you're discussing is absolutely public. So yes, likely that this will happen to the public eventually. But I do see it as a mix of market. So we are not planning right now our assumption based on the number that you mentioned.

The next question is from the line of Vishal Manchanda from Systematix.

Could you outline how much would you expect in annual biosimilar sales by FY '29?

I wish I could.

A broad number, broad guidance.

Hopefully, it will be in the range of $0.5 billion, $600 million, $700 million. Sorry that it -- but it very much depends, of course, of how abatacept will perform. It will be the lion's share of those sales.

And would this have margins above company margins? Like can this be at the entire biosimilar portfolio, can it give you 25% plus margins?

In the case that there will be no competition or low competition, absolutely, it will be above the average margin that we have.

Right. And we are on track to file the subcutaneous version this year in Europe and U.S.

Yes, we are in the U.S., for sure. In the Europe, there might be some delay.

Okay. Okay. And just if you could give the split of sales between IV and subcutaneous in the U.S. by value?

It is 50-50 in U.S. is -- but whereas in Europe, IV is very less and [ SC ] is high.

Got it. Got it. And your CapEx plans for the next two years, annual CapEx plan?

So next year would be in the range of INR 2,000 crores -- around INR 2,000 crores.

And would this largely be on biosimilars or you have other areas?

So biosimilars, certain like a product-specific investments, I think, are there and then general CapEx.

So in the interest of time, we'll take one last question from Siddharth Negandhi from CWC.

On biosimilars, you had mentioned that your R&D spends will reduce given that the spends towards abatacept have been completed. Going forward, given the draft U.S. FDA guidelines, how do you expect your cost per molecule to behave? How do you see competitive intensity playing out? And given that you're guiding for a lower R&D spend, should we assume this is because of those draft FDA guidelines? Or is it because the new set of launches post-abatacept and denosumab will be much later and therefore, the spend will be lower. Yes. That's one question.

On semaglutide, just wanted to get your perspective on how you see dosage forms playing out given that you're also launching oral in India? Do you see oral being unique to India? Or do you see that having a play in other emerging markets too? And between the 3 dosage forms, how do you see the likely salience, say, 2, 3 years out? Those were my 2 questions.

Sure. So the R&D, naturally, we -- abatacept we paid for Phase III trial. And going forward, we don't anticipate Phase III. So obviously, the level of R&D in this area will not be the same. In addition to that, the products that will come in the next coming years in biologics for us will come primarily with partners and less something that will come in-house. So obviously, then we share the R&D cost as part of that. And number three, we are becoming more productive. One day will discuss it, but we have AI and we have this kind of stuff. And the overall, the R&D will have less cost and more output. So this is on the R&D question. On the semaglutide question, definitely, we believe that the oral will grow not just in India, for sure, in India, but also in other places. It depends, of course, on how people appreciate the compliance of the oral product.

So and as time will go by, also the oral will have probably additional -- because that's what the innovator is doing, additional forms, and we will have all of them. So there is a life cycle management that we are looking. And obviously, we are following as well, and we will launch the same as IP will allow us to do that.

Sure. And any thoughts around how do you see the salience between pens, vials and orals in emerging markets for semaglutide?

I believe that in the places that in the emerging market, you have countries in which there is a full use of the pens and the innovator fully launched the product in a place that it was done partially and also markets that not at all. And obviously, the price point for each one of the market is a bit different. In the places with the lower prices, we believe that the oral will be more successful than in the lucrative markets, at least the way we look at it now.

Thanks, Siddharth. That was the last question. Thank you for joining us today. We value your time and participation on the call. If you have any further questions or need additional information, please feel free to reach out to me. With that, we conclude today's earnings call. Thank you, everyone. Have a good evening.

Good day, everyone, and welcome to the Quarter 3 FY '26 Earnings Call of Dr. Reddy's Laboratories Limited. We appreciate your continued interest in our company. I'm Aishwarya Sitharam, Head of Investor Relations at Dr. Reddy's.

Joining us today are members of the leadership team. Mr. Erez Israeli, our Chief Executive Officer; and Mr. M.V. Narasimham, MVN, our Chief Financial Officer.

Our quarterly financial results have been published earlier today and are available on our website for your reference. We will start today's call with MVN providing an overview of our financial performance for the quarter. Following that, Erez will share his insights on key business highlights as well as the company's strategic outlook. We will then open the floor for questions. All commentary and analysis during this call are based on our IFRS consolidated financial statements.

Please note that certain non-GAAP financial measures may also be discussed. Reconciliations to the corresponding GAAP measures are included in our press release. I would like to remind everyone that the safe harbor provisions outlined in our press release today apply to all forward-looking statements made during this call.

Before we proceed, I would like to call out a few housekeeping points. [Operator Instructions]. This session is being recorded, and both the audio and transcript will be made available on our website.

Please note that this call is the proprietary material of Dr. Reddy's Laboratories Limited and may not be rebroadcasted or quoted in any media or public forum without prior written permission from the company.

With that, let me hand the call over to MVN to present the financial highlights for the quarter. Over to you, MVN.

Thank you, Aishwarya. A warm welcome to all. Thank you for joining us on our Q3 FY '26 earnings call. It is my pleasure to take you through our financial performance for the quarter.

The business delivered a resilient performance in Q3 FY '26, reporting a 4.4% revenue growth and steady profitability despite product-specific headwinds. The performance reported this quarter was largely attributable to the double-digit growth delivered by our underlying base businesses, excluding Lenalidomide aided by favorable Forex.

Reported EBITDA margin, which stood at 23.5% included a onetime provision related to impact of changes in the implied benefit obligations under the new labor law codes in India. Adjusting for this onetime provision, the EBITDA margin was 24.8%.

All financial figures in this section are translated into U.S. dollars using convenience translation rate of INR 89.84, the exchange rate prevailing as of December 31, 2025. Consolidated revenues for the quarter stood at INR 8,727 crores, which is USD 971 million, a growth of 4.4% year-over-year and a decline of 0.9% on a sequential basis. Strong performance across our branded businesses, namely India, emerging markets and the acquired consumer health care business in Nicotine Replacement Therapy.

Further supported by favorable currency exchange rate movements was partially offset by lower Lenalidomide sales and continued pricing pressure in the U.S. and Europe Generics.

Consolidated gross profit margin for the quarter was 53.6%, a decrease of 505 basis points year-over-year and 104 basis points sequentially. The decline in margins during the quarter was largely on account of lower Lenalidomide sales, price erosion in our unbranded generic businesses. Adverse product mix in PSA and the onetime provision related to new labor law codes mentioned earlier.

Adjusting for this one-off, the margin was at 54.1%. The reported gross margin was 57.4% for global generics and 17.3% for PSA. The SG&A spend for the quarter was INR 2,692 crores, which is USD 300 million, an increase of 12% on year-over-year and 2% on Q-o-Q. The year-over-year increase was primarily on account of ongoing targeted investment to support long-term growth of our branded franchises, namely the acquired NRT Consumer Healthcare business and branded generics. Adverse Forex impact as well as the onetime provision related to the new labor law codes. SG&A spend accounted for around 31% of the revenue during the quarter was higher by 199 basis points year-over-year and 82 basis points on a sequential basis. Excluding the one-off provision, SG&A spend as a percentage to the revenue was around 30% in Q3 FY '26.

The R&D spend for the quarter was INR 615 crores, which is USD 68 million, a decline of 8% year-over-year and largely flat sequentially. The decrease reflected lower development spends in biosimilars given that large part of investment related to abatacept have been completed, the spend this quarter also included onetime new labor law codes related to the provision.

The R&D spend was 7% of revenues for Q3 FY '26, lower by 92 basis points on year-over-year and the same level as the previous quarter. Excluding the on-off R&D spend was at 6.8% of Q3 revenues. Other operating income for the quarter was INR 77 crores as against INR 44 crores in the corresponding quarter last year. EBITDA for the quarter, including other income stood INR 2,049 crores, which is USD 228 million, a decline of 11% on year-over-year basis and 13% sequentially.

The EBITDA margin stood at 23.5%, lower by 401 basis points on year-over-year and 322 basis points Q-o-Q. Adjusting for onetime new labor law codes related to the provision, the underlying EBITDA margin was at 24.8%. The net finance income for the quarter was higher at INR 117 crores as compared to net finance expenses of INR 2 crores during the same quarter last year.

The increased net finance was primarily on account of higher foreign exchange gain this quarter in comparison to foreign exchange loss reported in the corresponding quarter last year.

As a result, profit before tax for the quarter stood at INR 1,543 crores, that is USD 172 million. PBT as a percentage of revenue was at 17.7%. Excluding the onetime new labor law code-related provision, the PBT margin was at 19%. Effective tax rate for the quarter was at 22.9% compared to 25.1% in the corresponding period last year. The ETR for Q3 FY '26 was lower primarily due to favorable durational mix for the quarter in comparison to the same period in the previous year.

Profit after tax attributable to equity holders of the period for the quarter stood at INR 1,210 crores, which is USD 135 million, a decline of 14% year-over-year and 16% on Q-o-Q. This is at 13.9% of revenue before adjusting the one-off provision related to a new labor law codes.

The diluted EPS for the quarter is INR 14.52. Operating working capital as of 31st December 2025 was INR 14,142 crores, which is a USD 1.57 billion, an increase of INR 811 crores, which is USD 90 million over 30th September 2025. CapEx cash outflow for the quarter stood at INR 669 crores, which is [ $75 million ].

Free cash flow generated during the quarter was INR 374 crores, which is $42 million. As of December 31, 2025, we have a net cash surplus of INR 3,069 crores which is equivalent to USD 342 million. Foreign currency cash flow hedges executed through derivative instrument during the period are as follows: USD 481 million hedged using a combination of forwards and structured derivative contracts scheduled to mature through March 2027. The contracts are hedged at the rate of [ INR 89.1 to USD 90.3 ]. RUB 2.93 billion hedge at a fixed rate of [ RUB 1.06 ] with a maturity falling within next 3 months.

With this, I now request Erez to take us through the key business highlights.

Thank you so much, MVN. Good day, everyone, and thank you for joining us today. We really appreciate your continued engagement and interest in our company. Thank you all for joining our meeting.

Our overall performance in Q3 FY '26 remain consistent with our strategy. And we continue to deliver on our strategic priorities during the quarter, namely growing the base business, driving gross efficiencies across operations, advising our key pipeline programs, semaglutide and abatacept as well as pursuing selective business development video opportunities to augment our organic growth efforts.

In line with our stated aspirations our underlying base business delivered overall a double-digit growth this quarter. The company EBITDA margin was about 25%. And this is adjusted for onetime provision related to the new labor codes in India.

Let me now walk you through some of the key highlights of the quarter. Revenue grew by 4.4% year-on-year despite lower contribution from linadolomide. Our base business, excluding linadolomide, delivered double-digit growth. The overall growth for the quarter was also aided by favorable Forex. EBITDA margin stood at 23.5%, which included a onetime provision related to the new labor codes mentioned earlier, excluding this onetime provision, EBITDA margin is at 24.8%, like I mentioned, about 25%.

Annualized ROCE was at 20.4%. Net cash surplus at the end of the quarter was $342 million. In alignment with our strategic focus to deliver a first-in-class and innovative therapies in India and emerging market, we entered into a strategic collaboration with Immutep for commercialization of a novel immunotherapy oncology drug, Eftilagimod Alfa, a key global market outside of North America, Europe and Japan and Greater China with an upfront of $20 million potential regulatory and commercial milestones of up to $350 million as well as royalties.

Further, we recently launched Hevaxin, a novel, recombinant vaccine for the prevention of Hepatitis-E virus infection in India. We are pleased that the integration of the acquired Nicotine Replacement Therapy business is progressing as per plan. 85% of the business by value is now under operational controls.

The next phase of integration will include selected countries, Asia Pacific, Middle East and Latin America. We expect integration largely to be completed by the end of this fiscal. We continue to make progress on our key pipeline products. During the quarter, we received a marketing authorization for semaglutide injection in India from DCGI following the recommendation of subject to expert committee in the SEC under Central Drug Standard Control Organization.

Further, necessary local manufacturing license have been secured. We have also started filing in various emerging markets through the COPP route. In October 2025, we received a notice of noncompliance from the Canadian pharmaceutical drug [ directory ] for our semaglutide injection, which outlined a request for additional information and clarification on the specific aspect of the submission. We promptly submitted our response by mid-November 2025, well within the stipulated time and now we are awaiting a response from the regulatory agency in Canada.

On the biologics front, we have completed the filing of the biologics license application, the BLA, for the IV presentation of abatacept biosimilar candidate in December 2025 as per the schedule. Following the positive opinion for CHMP, we received European Commission approval for denosumab biosimilar in Q3 FY '26. Likewise, we have received the approval from MHRA in the U.K. Our in-house commercial team has launched the product in Germany in December and launched a preparation are underway for the U.K. and other European countries. We received a complete response letter from the USFDA for denosumab biosimilar BLA, which is -- was developed by our partner, Alvotech.

The CRL refers to the observation from a pre-license inspection of Alvotech, Reykjavík manufacturing facility.

On the regulatory front, in November 2025, the USFDA conducted GMP inspection of API facility CTO-SEZ in Srikakulam, Andhra Pradesh with 0 observations. In December 2025, the USFDA completed a GMPand a preapproval inspection of our facility FTO-SEZ PU-01 in Srikakulam, Andhra Pradesh and issued Form 483 with 5 observations. We have responded already to the agencies within the stipulated times.

Recently, the USFDA issued a post application action letter in relation to the response submitted to the observation received post the PI conducted at our Bachupally biologics facility in September 2025 for our rituximab biosimilars. We are actively working to resolve the outstanding observations. Our CDMO business, Aurigene Pharmaceutical Services Limited served as an exclusive API manufacturer for 2 of the 46 novel drug approved by the USFDA in 2025.

Further, APSL delivered 3 discovery programs through it's in-house AI-assisted discovery platform called Aurigene.Ai. We continued progress on our industry-leading sustainability practices, during the quarter, we announced a science-based net zero climate target, making us the only Indian pharmaceutical company to commit to such a target by FY '24 -- FY2045. We are in the leadership position in CDP Water Security & Climate Change categories for 2025.

Let me take you to the key business highlights for the quarter. Please note that all financial figures mentioned are reported in the respective local currencies. Our North America Generics business generated revenues of $338 million for the quarter, a decline of 16% year-on-year and 9% sequentially.

The decline was primarily on the account of level in Lenalidomide sales and price erosion in certain key products. During the quarter, we continued to launch momentum, adding 6 new products to our portfolio. Our European generic business reported revenue of $140 million for the quarter, a growth of 4% on a year-to-year basis as well as sequentially. The acquired Nicotine Replacement Therapy portfolio, which is now also in the base has been performing well.

Further, new product launches helped offset the impact of price erosion in generics. During the quarter, we launched 10 new generics products across markets, further strengthening our product portfolio. Our emerging market business delivered revenue of INR1,896 crores in Q3 FY '26, reflecting a robust growth of 32% year-on-year and 15% sequentially. Growth was primarily driven by new product launches across various markets and favorable Forex.

During the quarter, we introduced 30 new products across countries in line with our commitment to improving access and further deepening our market presence. Within this segment, our Russia business delivered growth of 21% year-on-year and 16% sequentially in constant currency terms amid continued adverse macroeconomic conditions.

Our India business reported revenue of INR 1,603 crores in Q3 FY '26, delivering a healthy double-digit year-on-year growth of 19% and 2% increase sequentially. This performance was attributable to revenues from our innovation franchise, new brand launches price increases and higher volumes as well as contribution from recently acquired Stugeron portfolio.

According to IQVIA, we continue to outperform the Indian pharmaceutical market, IPM, with a moving quarterly total mass quarterly, MQT, growth of 12.3% compared to the IPM growth of 11.8% and moving annual total, MAT, growth of 9.7% compared to IPM of 8.9% growth.

Our IPM rank is 10 for the quarter and 9 for the month of December 2025. During the quarter, we launched 2 new brands as we continue to enhance our domestic market presence. Our PSAI business reported revenue of $92 million in Q3 FY '26, resulting in a decline of 5% year-on-year and 15% sequentially.

During the quarter, we filed 31 Drug Master Files globally. In line with our strategic priorities, we remain committed to investing in differentiated R&D programs, especially peptides and biosimilars that offer meaningful commercial opportunities. In addition to our enhanced development efforts, we also -- we will also continue to strategically collaborate to build our innovation portfolio for India and emerging markets.

During the quarter, we completed 28 global generic filings. As we look forward, our focus remains on effective execution to deliver on our strategic priorities improving base business both advancing differentiated pipeline products like semaglutide, abatacept, driving operational efficiencies and pursuing value-accretive acquisition and partnership aimed at creating long-term value for our stakeholders.

Before we move to the Q&A session, I would like to announce that Aishwarya Sitharam has recently taken over as the Head of Investor Relationship from Richa Periwal. I wish both Aishwarya and Richa which stayed with our organization success in their respective new promoted roles.

With that, I welcome your thoughts and questions as we move into the Q&A sessions.

Thank you very much, Erez. [Operator Instructions] The first question is from the line of Neha Manpuria from Bank of America.

I have 2 questions from me. First, on the India business growth. The 19% growth, how should I think about organic growth for the India business because we did have the Stugeron acquisition in this quarter. Was that a meaningful contributor to this 19% growth? If I were to strip that out, would that growth still be, let's say, north of 15%? Would that be a fair assumption?

So it's somewhere between 17% and 18%, if I calculate, I'm not sure exactly where it is. But let's say, it's more than 17% organic without acquisitions.

That's right, Erez.

And what is driving this strong growth? It is because we've been doing -- I know we've been moving in the double-digit category for a few quarters now, but to step up to 17%, 18%, does seem very large in a quarter's time. What's changed in this quarter? And how sustainable is this growth trajectory, particularly this, let's say, mid-teens sort of growth trajectory as we look through the next few quarters?

So it's primarily the performance of the innovative product. So normally, and there are actually very good products that are being really appreciated by the market. So normally, when you produce a brand that is not known, there is a period of time in which you have a cycle of physicians that recognize this product and then recommend it.

So there is a certain gross pattern like introduction of any brand. And I think what happens to us is actually the strategy is working. We are in some of these brands in the third year since launch and some of them in the second year. And you will start to see the move of that.

So the -- in addition to the brand didn't perform in a similar manner, meaning that we are increasing the prices, we have the support of those, but it's primarily the -- what we called at the time of Horizon 2 into testing of innovation to India, this is the primary move that it's actually working.

Understood. Sorry, one last question on India. The innovative portfolio would be what portion of our sales roughly today if you were to quantify it?

15% to 20%...

No, it should be less.

It should be less.

If I need to, it's somewhere between 10% to 15%, but I'm not sure, Neha.

All right. No problem. And my second question is on sema. I think you mentioned that we have submitted the response, and we are waiting -- sorry, we are awaiting response from the agency. So have we not got a follow-up goal date as well? And according to you, what would be the next time line that we should look at for some approval in Canada?

Yes. So we do have a goal date because it's come automatically 6 months from the response time. So it takes us to May. But it doesn't mean that we need to get approval by that date, it can be any time between now and May, and hopefully, in May, no additional question. So I'm -- I don't know when we will get a response.

We are preparing for a launch even in Q4 and there is scenarios like that. And if not, it will be in Q1. But let's say, any time between end of February to May, we should expect to launch in Canada.

The next question is from the line of Damayanti Kerai from HSBC.

My question is again on India business. So you mentioned the innovation -- innovative products, et cetera, is helping you to achieve such strong number. So 2 things. Again, I think what is the sustainability of these numbers -- growth numbers in India? And also if you can clarify if the December quarter has some spillover benefit from the prior quarter where we had seen the GST disruption?

So it's absolutely sustainable. I don't know if it's 90%, which could be also 15%. So it's absolutely sustainable in this range. And I don't think that we had a major spillover.

There are no spill like on account of GST implementation. This is a clear quarter.

Got it. My second question is on semaglutide. Again, I guess we are awaiting for Health Canada to revert. But meanwhile, what are your expectations in terms of pricing compared to, say, a few months back, given now most of the companies are, I guess, gearing up for these opportunities? And what's your broader expectation on the pricing and competition in the key markets where you are looking to launch semaglutide.

So expectations did not change much from our recent discussions. We know that eventually, there will be a competition in Canada. We also know that Novo Nordisk announced that they want also to participate, and they even started to offer certain organization in Canada, their -- what they call their own generic brands, if you wish, in Canada as well. We have made arrangements like that.

I still believe that if we will get the approval, we have a good chance to be alone or even with a low level of numbers of players that will compete. And over time, they will accumulate the opportunity to my opinion, is still there.

Sure. And earlier, I guess, your expectation for pricing across different markets where some were say $20 to $70 per unit. So are you still expecting the similar range in terms of pricing in different markets?

Yes, yes. The -- most of the markets will be on the lower end of the spectrum. But yes, the spectrum is still there. We did not get yet indications that it will be lower. So over time, when people will get approval, we are expecting to be very competitive markets. There will be a short period of time that can be from weeks to months. It depends on the market, in which we can have healthier prices. But then we are preparing ourselves for another very competitive markets.

So somewhere closer to the lower end of the range, right? That's the expectation.

Yes, yes, yes. I think this is a fair assumption for your analysis.

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

A couple of questions. One, how much has generic Lenalidomide still contributed to the EBITDA margins in the quarter? And now that we have a visibility of our expense levels, et cetera. What shall we look forward to in terms of EBITDA margins in Q4 and FY '27?

Four years, I did not answer this question. And this is the last quarter that I need to answer this question. So I will not be able to tell you the amount, and this is because of the confidentiality agreement that we have with the innovator. It's not because I don't want. But what we can say that the decline that you see in America is primarily a Lina. And actually, without Lina, we've even grew. So you can you can take it from there.

Got it. When you say decline in the U.S., it's Y-o-Y or Q-o-Q?

Both.

And second, can I also understand the time lines now, latest time lines for denosumab and rituximab in the U.S.?

Yes. So the denosumab, Alvotech needs to answer the deficiency letter. And then, of course, it depends on how the USFDA will address the response. So the answer is I don't know, but it is likely that will be in the second quarter of -- and maybe even after, of FY '27. So I'm not expecting it. The normal time that they evaluate the efficiency letter, a new goal date, likely that you take us to this time frame.

But I really don't know because it's on biologics, you don't always end up with 1 deficiency letter. So we need to see. [indiscernible] answered on denosumab. On rituximab, I think you asked for both unless I...

Yes. Yes, correct.

On Rituximab, we have 1 -- out of the 2 comments that I gave, which is repeated to our response, it is primarily related to one of the lines of the fill and finish. And on that, we will answer in the next 2 weeks, give or take.

And then the expectation that they will come to visit us again and reinspect us. So the approval likely. It's not official, but I'll give you my best assessment that likely that we'll get reinspection on that specific line. And I'm ready preempting one of the next question. There is no impact on abatacept because abatacept is not on the same lines. But this is the task of rituximab.

So right now, it will be a response, then they will decide when they want to come to visit, and it will come for there. So unlikely, let's say, in the next 6 months and maybe more than that.

The next question is from the line of Abdulkader Puranwala from ICICI Securities.

So just firstly, on semaglutide, so I heard your comments about Canada entry Feb to May where you expect. I mean, how about the other countries in which the patent expires in March, including India? And in terms of -- we previously talked about having a capacity of 12 million cartridges.

So I mean, is there any increase to that? And by when we should see a meaningful traction coming from this product?

So the starting point is India, we will launch on time. The date is March 21. It happened to be my birthday for everybody. So this is one. In Canada, like I mentioned, it can be any time from now until the goal end of May, that's what I answered Neha, I don't know exactly in what in that spectrum when exactly it's going to be. But the expectation is that we have an approvable product and we will launch at this time frame.

In addition to that, we are using our COPP that we got already for media to register in other markets. Altogether like I mentioned in the past, it's much more than 80 markets. I think it's 84 or 80-something markets altogether. But the most meaningful will be Brazil, somewhere around July, as well as Turkey, give or take the same time frame.

In addition to that, we have partners both in India as well as outside of India that wants the right for our semaglutide for their market. And we are obtaining also licensing fee for these kind of activities, not just for this product but also for other products. So that's overall.

So the 12 million pens remains the same for that period of time. For the period after, we can have more than that. Right now, as you know, we are using primarily the fill and finish from Stelis. But as time will go by, we have additional capacity and we continue to use our partner as well as our internal facilities.

Got it. And just to follow up on the biosimilars as well. So what we're having now a CRL for denosumab and rituximab, so internally, how is that impacting our estimates for your entire biosimilar time lines -- launch time lines?

And secondly, with abata, is there any time line for launch we are planning internally?

Sure. So on rituximab, the main the launch -- delay of the launch is to our partner Fresenius. As you recall, rituximab was a product we primarily used to qualify Bachupally. It's actually served the purpose well. Maybe even too much engagement with the authorities. It's actually serves the purpose really, really well. in that respect.

So the launch -- overall delay in the launch versus the regional plan is probably a year plus. In Europe, we already launched. So Europe is good, and we are progressing there. They're also about the same. We launched in Europe, and we are going to launch in additional markets. It's a very competitive market over there. The denosumab right now because of the efficiency letter, I don't know exactly when it will answer. So I don't know how is the delay, but it is at least 6 months, if not more than that, for this particular product.

I don't see an impact of abatacept. The denosumab is made by a partner, Alvotech in Reykjavík, Iceland, abatacept make on different lines in Bachupally, India. Obviously, we need to get approval for abatacept in the stipulated time. We submitted it on time. So the first expectation is that we'll get somewhere towards the end of the calendar of '26, the approval for the IV product and then we can launch it. The approval for the subcu should be by January or February of 2028.

We believe that we are still on time for that. Of course, we need to see that we are actually making it happen. But abatacept so far looks in the right direction, especially in the United States.

The next question is from the line of Kunal Dhamesha from Macquarie.

Yes. Just one on the sema Canada. Is there a requirement of plant inspection from Health Canada before approval or all those things are already done from our side as well as from our partners side?

So no inspections are expected or needed. We just hope for approval. Of course, Kunal, can give us additional queries like a normal regulatory process but we are expecting approval.

But normal regulatory process does not do all plant inspection from Health Canada, like the USFDA has.

No, no inspection.

Sure, sure. And secondly, no, I think in one of the media articles, the Health Canada spokesperson has kind of mentioned that the manufacturing of the API is different between generic players as well as the -- versus the innovator and hence, substitutable status whether the generics would be substitutable as kind of questionable. So if you could provide any color on this, how much confident we are that our generic would be substitutable at the pharmacy level.

No, it's absolutely substitutable. And by the way, what we said is not correct, which actually also the innovator is using synthetic API for the injectables and recombinant products for the oral. And we are planning to do the same for the generics.

So in that respect, I don't see a merit to that statement. I believe the product is absolutely going to be substitutable. So there is no need for a prescription or special processor branding or any branded generic activity. It's a normal retail products once we'll get approval.

Sure. And my second question is on the new labor code related provision that we have basically provided some INR 117 crores, so how should we think of this? Is it some bit of retrospective cost also baked into this INR 117 crores or it's just a prospective cost? And is it recurring in nature that structurally, our employee expenses would be a little higher now? How should we think about this?

Kunal, as per the new labor law codes now, which definition is being revised in line with the new labor law court. It's like a [ our ] employees on the payroll optic company as of December 31, we are recomputed retrospectively. It is not like a prospective.

So that's where this entire gratuity leave catchment proportion has been made. And going forward, in line with this may not be this extent, but that would be like my view, less than, I think, 50 basis points, would be the impact, but that's not very significant.

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

Could you talk a little bit about biosimilar abatacept launch in the European markets as well. Is that something that we are planning to target in the next couple of years? And also, if you could talk about the addressable market in Europe as well? That's my first question.

So yes, sure. So yes, Europe is a very important market for abatacept, we are going to do it by ourselves as well as with partners. The -- and we had to cover all the markets because in some of the markets, we don't have the ability to go to physicians. And so we are trying to cover as much as possible.

Obviously, the markets that are tender markets we can cover easily by ourselves. Likely, that the launch is July.

July, we have filed submitting July 2026 and expecting approved by 12 months.

Yes. So July 2027, you should expect a launch in Europe.

For both IV and SV.

For both IV and subcu.

And how large is the addressable market in Europe for abatacept today?

About $2 billion, maybe a little bit more.

And is this also in terms of the competitive landscape, given an abatacept, seems like we're the only 1 who's completed Phase III, maybe 1 more person is starting off. I don't know where they are right now. But even in Europe, similar competitive landscape, like we'll probably be the first only company at launch?

Yes. And by the way, the idea is to launch abatacept in every country that has a demand for this product, either by ourselves or with a partner. So the -- we are planning to launch at this time frame in Europe, in the United States, in Japan, in Canada and in every market that there is a demand for this product.

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

Just the first 1 on the NRT, the disclosure you have shared around the growth there, right, is about 25% Y-o-Y. Can you split it out into like constant currency and what the growth was, I remember, and we had about [ 6 billion ] to INR 600 crores last year same time when we had [ 1 million ] pretax profits. So how has that evolved even for at these levels now?

So Shyam on the constant currency is year-over-year 8% growth.

Okay. So the rest is all coming from currency [indiscernible]?

Yes.

Okay. So how should we look at the steady-state growth for this? Is there something that has changed? Because I remember single-digit growth was what we guided to. So that continues, right, in constant currency?

Yes, Shyam. First, yes. It can be -- right now, we have -- we see upside to the model. It's not a significant asset. But let's say, instead of -- we always said single digit. But right now, it looks like on the upper side of the single digit. And it may go to double-digit depends because we are also participating in certain tenders like Brazil, and other stuff.

So if you win this tender, it gives you a chunk of sales in a particular situation. Overall, it looks good. It looks that we are exceeding the expectations that we had internally. And actually, the demand from this product is higher than what we thought.

Helpful. So just a subpart of the question was on the profitability as well. As we have -- I know we have done additional brand building access, but has the profitability materially changed.

Yes. Because of like sales are also higher and then it is like here, the A&P investments overall. If you remember, like at the business case level we said EBITDA is around 25%. But now since we are doing well, the EBITDA percentage is higher than 25% currently.

Going forward, right now, it looks really well above expectations. But let's say, I think fair assumption will be that we'll stay with 25%.

Yes.

Got it. And just the last question to some of the opening remarks you made, Erez, on Novo strategy in Canada. Just curious why would they want to tie up with some local organization didn't file, they didn't defend their patents originally. Is there a chance that slippage happens across the border into the U.S. for the lower-priced version. Any philosophy or thought process, you're able to understand why they're doing it.

It's beyond my paycheck. I'm not managing Novo Nordisk, I hardly -- read this with a lot of difficulties. I'm assuming that they want to protect their market share. They understand what will happen when a company like us, we launched and other companies we launch.

Apparently, it's important for them to keep the relationship. They also said it, so I'm kind of that. About over the border, probably, but I have no data or indications about it. We are not building on that. Let's say, we are building on selling to Canadian. And if it will be more, it will be bought.

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

Thanks for the opportunity. First question on India, semaglutide opportunity. Just would like to understand the approval which we have got is for diabetes and weight management or only diabetes?

We got it for the diabetic product. And we are planning to launch eventually all products in India. Also the other part of the products are in the queue to get approval. But what we will launch in March is the generic version of Ozempic, if you wish.

Got it. And so effectively, if at all for weight management, it would not be in March, but subsequently, as and when you get the approval from the regulatory authority.

The physicians will prescribe the way they believe they should. But the indication of the product launch is for diabetic...

Because the concentration of the product would be relatively -- or the strength of the product is relatively low for weight management, that way?

Also, many, many people use the Ozempic for the same. But yes, for the second, the equivalent of Wegovy will come later. In March, we will launch. But in India, we are going to have all strengths. We will have the -- both the indication as well as the oral.

Got it. Sir, secondly, just on this rituximab, let's say, if at all that reinspection happens post your response. In your experience, has it happened like USFDA accounts only for a particular line for inspection and doesn't inspect the entire site as such?

No, absolutely. It's this is what PI, pre-approval inspection is all about. So they are coming for a specific line. They can extend it if they wish. It's up to them. But it's very, very common, especially on sterile product.

Got it. And on the same thing, what would be the tentative time line for submitting the subcutaneous version filing for USFDA?

Filing time, you guys remember? The subcu for the US.

It's July.

July.

July 2026.

In July, we will submit, and we hope to get the approval and the patent date, which is January or February 2028.

Got it. And just one more from my side. R&D spend guidance, if you could share?

Sorry, what to share?

R&D guidance.

R&D guidance...

Is in the range of, Tushar, is 7% to 8%, what we have guided earlier. That is -- remains same.

But sir, now that major product, I guess, it was with respect to is largely done. So you think that we will be still on the higher side of this guidance, at least for FY '27?

So because like pembro also, we have just started the collaboration with Alvotech. I think there's new molecules also we'll continue to introduce. That's why we are saying 7% to 8% range.

When we have -- we finish a budget of products, we obviously want to develop more products. We have aspiration to launch hundreds of products in the next 15 years. So there is enough products to develop. So it's more how much we can afford in a particular time in our capacity in R&D.

The next question is from the line of Vivek Agrawal from Citi.

My question is related to SG&A spend. That continues to remain high. And this is against the company's guidance of some moderation ahead of Revlimid cliff. I just want to understand the outlook here. Are we expecting any kind of decline in SG&A spend next year in FY '27? Or is it or it can still grow Y-o-Y maybe at a lower rate. So if you can help us understand.

Well, Vivek, if you see like at lower Lina sales for the quarter and our -- as a percentage to the sales is SG&A still is like without this level of ports impact at 30%. And then in this 30% also the win which like Forex has given the favorable impact on the top line, here also like where our SG&A spend also there in Russia, in Europe for the NRT, there is a -- like a ForEx impact also is the SG&A. So considering and also we are continuing to invest. I think if you look at like how our branded business as growth be it India, emerging markets, NRT, all around the solid part of growth -- and despite we have continued to invest and then a 30% of the sales, we believe I think we are in the control of the overall SG&A.

Understood. And that makes sense. But just want to understand an absolute level, right? So in absolute terms, are we expecting any kind of moderation or decline in next year? Or it can still grow from here on?

So you'll see that it will be -- it will grow less to moderation of the growth, the reason for that, as -- and we discussed it in the past, we want -- and we obviously prepared for the post Lina era for quite some time. We knew it is coming. We are aware of the implications -- it's not -- it did not come as a surprise to us. And part of our cost containment, which is one of the key principles that I mentioned is that we want to control the cost.

So also the SG&A, the idea is that, overall, the discretionary costs we are controlling very much like we discussed in the past. And the pace of the growth of the cost will be less than half of the growth of the top line.

The next question is from the line of Kunal Lakhan from CLSA.

My question was on the emerging markets, especially Russia, we saw some good growth numbers this quarter. And I do read your commentary that it's primarily driven by new product launches. Just wanted to understand how much of this growth was because of the new products and how much was the base business growth here?

It is both. It is both. And then -- so we have growth in all 3 segments in Russia, meaning the retail, the hospitals and retail both on the Rx and OTC. So it's both the old product as well as new products.

And also in terms of pipeline of new products, if you can give some color on the -- in the coming quarters and years, how does the pipeline look like? And is there this growth is sustainable once the current high base is actually in the base?

So the growth in Russia is sustainable. Not always, you'll see a 21% growth every quarter, but double digit, healthy double digit in Russia is absolutely sustainable.

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

Just one question on our sema tablets filing in India. I think the SEC has asked for some on-site verification of a Phase III trial data. Now is it something that could, does it typically meaningfully impact approval time lines? Or is it sort of relatively easier to address? I just wanted to understand that.

I don't have any concerns on this one.

Got it. That's -- and just a related question. So post-March, subject to an approval, there's no litigation overhang even for the launch of tablets, right, in India?

Correct.

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

Yes. My first question is on the Aurigene CDMO opportunity that in the opening remarks, you have mentioned that it has been qualified as an exclusive supplier of 2 innovative APIs. So how important this opportunity be for us? And when of that we fortifying? And how important or in terms of the revenue contribution that we should be seeing out of it?

So as we speak, this is still a small business. We -- as I'm sure you all recall, we started the CDMO efforts in a more, let's say, with -- let's say, more emphasis on this activity for the last 2 years. What we try to do is to engage meaningful products and get Initially, we started with Phase I, Phase II. And we are very happy that effort has started about 2 years ago and now started yield.

How significant it is now. It's not that significant, but we should absolutely see, I believe, $100-plus million coming to us as a growth in the next 2 to 3 years from that. From the overall scheme, it's not big for, but for the CDMO business, it is an important place because it will allow them to have sustainable capabilities over time.

Sure. My second question is on the Lenalidomide, so knowing the fact that we are an integrated player means having our own API also for that. So given that situation, what is the kind of tail end opportunities in the Lenalidomide that we should be seeing?

We'll continue to be in the product. But given the fact that we are comparing it to the period of time which we had this agreement, I always advise the people not to give a value to it. So it will not confuse all of you. So you should assume that the old arrangements from Q4 is 0. Doesn't mean that we will not sell, but let's say, just for...

Another generic, another molecule...

As for clarity, just it will help everybody.

Sure, sure. Just one booking question. We have talked about the Forex element in the couple of line items this quarter. So whether there is a kind of a net positive impact that we have seen in what are the kind of a net Forex loss or gain that we have seen in the financials for the quarter? And the same number if you can give for the corresponding previous quarter also?

Erez -- sorry, if you see that, I think for each of the sales we have called out, especially in the Europe and EM. Definitely, there's a Forex element. At the same time, in the SG&A as well as COGS, whether we import also we ought to account at a higher price. There is a net-net if you ask and then there's a positive impact on the EBITDA margins.

Sure. Are we quantifying, sir?

I think we haven't. Not that it's significant, I think, because I don't know if there were several...

It is not that significant. I don't remember exactly the numbers, but it is not -- like it's not very significant for the second. It's -- I don't remember exactly the percentage, but it's not huge.

Yes.

In the interest of time, we will take one last question from Foram Parekh from Bank of Baroda Capital Markets.

My question is on the India market. So with the new acquisition that we have done, we have seen growth expanding to 19%. So in FY '27, can be assumed with sema launch and as the new acquisition scales up, would it be wise to assume a growth rate higher than the current growth rate of 19%?

I will not -- I think you should -- we feel very, very comfortable with 15% plus. Can it be more than 19% it can, but I don't recommend to use it for now.

What we can say that the 15%, 16% is very sustainable. The rest is depending on certain scenarios, but it might. Plus, we are not done with BD. So likely the things will come, but of course, we cannot guide for it.

Okay. That's helpful. My second question is on the European side, ex of NRT of where we have seen sales mellowing down to 15% growth even with the launch of biosimilars. So again, the question is, as these biosimilars scales up and probably with the launch of abatacept in the European market. So can European region, ex of NRT, scale or north of 20% or so?

Again, it can, but it depends on the scenarios. So the I think what I can say about Europe, and this is something that we are very proud of in 2018, we had less than 100 million above sales in Europe. And in the future, in the next 2 or 3 years, we will see 10x this number. So it's emphasized the importance of euro for us. Europe is not only what we do in Europe, so what we do with partners in Europe.

So it's very, very important for us because we will not have capability in all the markets. So the answer is it's possible if it is possible. We are not guiding for that. What we are saying is that all markets should grow double digit besides the United States that will grow single digit, and this is without taking the impact of Lina. Like I mentioned from next quarter, this arrangement is done and that's how we should see.

Sure. And last question is on the Global Generics gross margin. As Revlimid sales have come down, we're seeing gross margins also coming down to 57%, so from next quarter onwards, with 0 Revlimid sales, can the gross margin territory scale down further?

So we can expect without a Lenalidomide scenario from Q4 onwards. Our gross margin of both Global Generics and PSA in the range of 50% to 55% because some quarters depends upon the products and business mix, it vary, but the range is like 50% to 55% is the range.

And that was the last question for the call today. Thank you all for joining us. We value your time and participation on the call. If you have any further questions or need additional information, please do feel free to reach out to me.

With that, we conclude today's earnings call. Thank you, everybody.

Thank you.

Thank you, guys.

Good day, and welcome our quarter 2 fiscal year 2026 [indiscernible] Limited. I'm Aishwarya Sitharam and I'm part of the Dr. Reddy's Investor Relations team. [Operator Instructions] I now hand over the conference to Richa Periwal.

Thanks, Aishwarya. Good morning, good evening, and a warm welcome to all. We hope you had a joyful and safe Diwali celebrations with your loved ones. Thank you for joining us for Dr. Reddy's Laboratories Q2 FY '26 Earnings Conference Call. We truly value your time and participation.

Joining us today are members of the leadership team. Mr. Erez Israeli, CEO; Mr. MVN, our CFO; and the Investor Relations team. Earlier today, we released our quarterly financial results. These are now available on your website for your reference. We will begin today's session with MVN providing an overview of our financial performance for the quarter.

Following that, Erez will share his insights on key business highlights and our strategic outlook. We will then open the floor for questions. Before we proceed, please note that this call is the proprietary material of Dr. Reddy's Laboratories and may not be rebroadcasted or quoted in any media or public forum without prior written consent from the company. This session is being recorded, and both the audio 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. Please note that certain non-GAAP financial measures may also be discussed. Reconciliations to the corresponding GAAP measures are included in our press release.

Finally, a reminder that the safe harbor provisions outlined in today's press release apply to all forward-looking statements made during the call.

With that, let me now hand it over to MVN to present the financial highlights for the quarter. Over to you, MVN.

Thank you, Richa, and Aishwarya, good evening, and a warm welcome to all. Thank you for joining us on our Q2 FY '26 earnings call. I'm delighted to take you through our financial performance for the quarter. We delivered a steady performance in Q2, achieving near double-digit growth despite lower Lenalidomide renamed sales. The acquired consumer health care business supported the top line momentum. EBITDA margin stood at 26.7% for the quarter. All financial figures in this section are translated into U.S. dollars using a convenience translation rate of INR 88.78, the exchange rate prevailing as of September 30, 2025.

Consolidated revenue for the quarter stood at INR 8,805 crores which is USD 992 million, a growth of 9.8% year-over-year and 3% on sequential basis. While U.S generics faced product specific price erosion and lower Lenalidomide sales, overall growth was supported by the integration of consumer health care business and double-digit growth delivery across other markets aided by favorable ForEx. Consolidated gross profit margin for the quarter was 54.7%, a decrease of 492 basis points year-over-year and 223 basis points sequentially. The decrease in margins during the quarter was due to lower Lenalidomide sales and product-specific price erosion in the U.S. generics. Onetime inventory provisions from the discontinuation of the certain pipeline products due to technical challenges in the lower operating leverage in PSAI business. Gross margin was 59.1% for global generics and 18% for PSAI. The SG&A spend for the quarter was INR 2,644 crores, which is USD 298 million, an increase of 15% on year-over-year and 3% on a sequential basis.

The year-over-year increase was primarily driven by focused investments in the acquired NRT consumer healthcare business and in branded generics, which are key to driving sustainable growth. SG&A for the quarter includes a onetime provision of INR 70 crores for a VAT liability in one of our subsidiaries and charges related to a discontinued pipeline product. SG&A spend accounted for 30% of revenues during the quarter and was higher by 132 basis points year-over-year and similar levels on a sequential basis.

Excluding the one-offs related to VAT provision, SG&A expense as a percentage of revenues was at 29.2% in Q2 FY '26. The R&D spend for the quarter was INR 620 crores, which is USD 70 million, a decline of 15% year-over-year. And broadly, flat sequentially. The decrease was due to reduced development spend on biosimilars during the quarter as major investments for abatacept have already been completed. We continue to make focused R&D investments in complex generics, APIs and biosimilar pipeline while pursuing strategic collaborations to bring innovative assets that support sustainable long-term growth.

The R&D spend was 7% of revenues for the quarter, lower by 203 basis points year-over-year and 26 basis points on a sequential basis. Other operating income for the quarter was INR 267 crores, higher than INR 98 crores in the corresponding quarter last year. This was mainly on account of product-related IP settlement income in the United States and onetime reversal of INR 88 crores in liabilities related to discontinuation of the pipeline product.

EBITDA for the quarter, inclusive of other income, stood at INR 2,351 crores which is USD 265 million, an increase of 3% on year-over-year and a sequential basis. The EBITDA margin stood at 26.7%, lowered by 174 basis points on year-over-year and flat sequentially. Adjusting for the onetime VAT provision mentioned earlier, the underlying EBITDA margin was at 27.5%. Impairment charge was INR 66 crores, including INR 54 crores for property, plant and equipment at our Middleburg facility following the discontinuation of the pipeline product, conjugated estrogen. The remaining charge pertains to product related to intangibles impacted by adverse market conditions. The net finance income for the quarter was lower at INR 77 crores as compared to INR 156 crores for the same quarter last year. The decline in net finance income reflects lower returns from financial investment following the deployment of cash reserves towards acquisition of consumer health care business and other intangible assets in line with our capital allocation strategy.

As a result, profit before tax for the quarter stood at INR 1,835 crores, that is USD 207 million. PBT as a percentage revenues was at 20.8% on an adjusted basis, excluding the onetime VAT provision, the PBT margin was at 21.6%. The effective tax rate for the quarter was at 22.2% compared to 30% in the corresponding period last year. The ETR for Q2 FY '26 was lower primarily due to favorable jurisdictional mix for the quarter. The ETR in the corresponding period last year was higher due to reversal of previously recognized deferred tax assets related to land indexation following amendments introduced through the Finance Act 2024 to Income-Tax Act 1961.

Profit after tax attributable to the equity holders of the parent for the quarter stood at INR 1,437 crores, which is USD 162 million, a growth of 14% on a year-over-year, flat on Q-o-Q basis. This is at 16.3% of revenues, Diluted EPS for the quarter is INR 17.25. Operating working capital as of 30th September 2025 was INR 13,331 crores, which is in USD 1.5 billion, an increase of INR 3 crores, which is like USD 0.4 million over 30th June 2025. CapEx cash outflow for the quarter stood at INR 511 crores, which is INR 58 million. Free cash flow generated during the quarter was INR 1,046 crores, which is USD 118 million.

As of September 30, we have a net cash surplus of INR 2,751 crores which is like USD 310 million. Foreign currency cash flow hedges executed through derivative instruments during the period are as follows: USD 502 million hedged using combination of forward structured derivative contracts scheduled to mature through December 2026. These contracts are hedged at the rate of INR 86.9 per U.S. dollar, RUB 4.28 billion hedged at a fixed rate of 1.03 per Russian ruble with maturity falling within next 4 months.

With this, I request Erez to take us through the...

Thank you, MVN. Good day, everyone, and thank you for joining us today. We are pleased to report a consistent performance in Q2 FY '26, marked by a double-digit growth and steady profitability.

This performance was driven by contributions across all key markets except for the U.S. generic business. During the quarter, we continued to make a meaningful progress across our strategic priorities namely growing the base, scaling our presence in consumer health care, innovative therapies and biosimilars. We advanced our key pipeline programs, including semaglutide and abatacept.

In addition, we have been driving initiatives to enhance cost efficiencies across our operations while simultaneously pursuing business development activity to support sustainable growth in the coming quarters. Let me now walk you through some of the key highlights of the quarter. Revenue grew by 10% year-on-year driven by broad-based growth across businesses, benefiting from acquired consumer health care and supported by a favorable ForEx. Growth was partially offset by lower contribution from Lenalidomide and some price erosion in the U.S. in some select products. The EBITDA margin stood at 26.7%. The ROCE for the quarter was around 22%. The cash flow from operation was utilized to our plant expansions and acquisition of strategic brands and securing rights for distribution in defined markets.

We closed the quarter with net cash surplus of $310 million reinforcing the strength of our balance sheet. We strengthened our innovation-led portfolio to strategic collaboration and launches. We entered the anti-vertigo segment with the acquisition of Stugeron and related brands across 18 markets in APAC and EMEA from Janssen Pharmaceutica.

In India, we strengthened our gastrointestinal portfolio with the launch of 2 novel drugs Tegoprazan under the brand name of PCAB and Linaclotide under the brand name of Colozo. In partnership with Unitaid, Clinton Health Access Initiative & Wits RHI, we are working to make Lenacapavir, a long-acting HIV prevention tool accessible and affordable in low and middle-income countries. We continue to make progress on our key pipeline products. The subject expert committee, the SEC under Central Drug Standard Control Organization has recommended approval for semaglutide injection in India. We received a positive opinion from European Medicines Agency Committee for medicinal products for human use for denosumab biosimilar candidate.

The U.S. FDA accepted our investigational new drug's IND application for COYA 302, a partner novel drug for the treatment patients with ALS. We also made a steady progress on integrating the acquired nicotine replacement therapy business. We have successfully integrated 2/3 of the business by value, including Canada, Australia and selected key Western European markets. The next phase will include Southern Europe, Israel and Taiwan.

On the regulatory front, several inspections were completed across our global facilities. In September 2025, the U.S. FDA conducted a pre-approval inspection on our Bachupally biologics facility and issued a Form 483 with 5 observations. The agency recently issued a complete response letter in reference to the ongoing resolution of observation pertaining to the biologic license application, the BLA of our rituximab biosimilar candidate. We are actively working to address these observations.

The U.S. FDA conclude a GMP inspection at our Mirfield API facility in the U.K., resulting in issuing a Form 483 containing 7 observations. Additionally, our API site CTO-5 in Miryalaguda, in Telangana as well as our Middleburgh facility in New York were classified as VAI following successful GMP inspection by the U.S. FDA. The GMP and pre-approval inspection PAI conducted by the U.S. FDA in July 2025, at our formulation manufacturing facility, FTO-11 has been formally closed. We have received the EIR establishment inspection report with the inspection outcome categorized as VAI. We continue to be recognized for our industry-leading performance in sustainability.

We retained our MSCI ESG Rating for A for the second consecutive year. Our ESG Risk Rating from Morningstar Sustainalytics improved from 23.6% to 18.4%, representing a lower ESG risk profile. Our waste management practices were recognized with the Diamond Standard for achieving 99.9% of waste diversion from landfills. Further our formulation facilities at Srikakulam FTO-11 became India's first pharmaceutical facility to receive a Leadership in Energy and Environmental Design, Platinum Certification for existing buildings from U.S. Green Building Council.

Let me take -- 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 generic business generated revenues of $373 million for the quarter, a decline of 16% year-on-year and 7% sequentially. The performance was impacted by price erosion in selected key products, primarily Lenalidomide. During the quarter, we launched 7 new products and expect launch momentum to continue in the second half of the fiscal.

Our European business reported revenue of $135 million for the quarter, growth of 150% on a year-to-year basis and 3% on quarter-on-quarter. The year-on-year performance was primarily driven by contribution from the acquired nicotine replacement therapy portfolio and new product launches, which offset the price erosion pressure -- the pricing pressure. Excluding the NRT, the growth was 6% year-on-year and quarter-on-quarter. During the quarter, we launched 8 new generic products across European markets, further strengthening our portfolio.

Our emerging market business delivered revenue of INR 1,655 crores in Q2 reflecting a growth of 14% year-on-year and 18% sequentially. Growth was primarily driven by new product launches across markets and aided by favorable ForEx. During the quarter, we introduced 24 new products across multiple countries, reinforcing our commitment to expanding access and strengthening our market presence. Within this segment, our Russia business delivered a growth of 13% year-on-year and 18% sequentially in constant currency terms despite prevailing macroeconomic challenges.

Our India business reported revenues of INR 1,578 crores in Q2, delivering a double-digit year-on-year growth of 13% and 7% increase sequentially. This performance was driven by contribution from new product launches, improved pricing and higher volumes. According to IQVIA, we have moved up one place to the 9th position in India pharmaceutical market for the month of September and continued to outpace market growth.

With moving annual total MAT growth of 9.4% compared to IPM 7.8% growth. During the quarter, we launched 11 new brands in addition to the acquired Stugeron portfolio, further strengthening our domestic franchise. Our PSAI business reported revenue of $108 million in Q2 FY '26, registering growth of 8% year-over-year and 13% sequentially. During the quarter, we filed 37 Drug Master Files globally. We have further sharpened our R&D focus on programs that offer clear differentiation and strong commercial potential in alignment with our strategic priorities. We have rationalized few pipeline products that face extended regulatory uncertainty limited market opportunity or increasing competitive intensity.

Our focus is anchored around company generic GLP-1 molecules and biosimilar. In addition, we are actively pursuing strategic collaboration and partnership to enhance our innovation ecosystem, accelerate development time lines and expand our capabilities in emerging therapeutic areas. During the quarter, we completed 43 global generic filings. For the quarters ahead, we are focused on robust execution to deliver on our strategic priority, meaning grow our base business, focus on our key pipeline assets like semaglutide and abatacept improving operational efficiency and productivity across the value chain. And we continue to actively explore partnership and value-accretive acquisitions that support our strategic vision and innovation momentum while enhancing our capabilities.

These efforts are aimed to driving sustainable growth and delivering long-term value for our stakeholders. And with that, I will welcome your thoughts and questions as we move into the QA session.

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

My first question is on the U.S. business. While I know you talked about product specific erosion and REVLIMID quarter-on-quarter. One, should we expect any REVLIMID all in the third quarter? And second question on the U.S. business. You've seen a product discontinuation this year. Last year, we saw NuvaRing being discontinued. You continue to spend a fair bit on R&D. How should we think about the U.S. product pipeline? Because if I look at Reddy's approval history while we have got a fair bit of approvals, we haven't really got any meaningful large launch approval outside of REVLIMID and probably Vascepa was the last one that I can think about. So I just wanted your thoughts on how we should look at some of these more meaningful launches coming through now that conjugated estrogen has been discontinued. How do you think about the U.S. growth.

So just, Neha, I think there was some thing with the voice. Just the beginning of your question, I got the rest of it. Since the beginning of the question, I could not hear it sorry about it.

Yes. No problem. I was asking that, is it fair to assume that there would be no REVLIMID limit in the third quarter? Or would we still see some bits of REVLIMID as a part of the settlement in the third quarter?

So we should assume that we will have and -- but less than what was in this quarter. So -- and likely that it's either going to be the last quarter or maybe some tail that will go into Q4. But by and large, Q3 will still have REVLIMID in it. On the R&D question, first, I agree with you. We -- there were certain products that we tried for a while to get an approval. And as we did not get, we kind of pull the trigger on them. We kind of gave ourselves a certain time lines that if we don't we just move on. As we speak, the main products in the United States as related to R&D will be the biosimilars I think the main products in terms of significant growth in the United, which will be abatacept.

On the small molecules, we do have meaningful products that are coming primarily peptides, long-acting peptides. Some of them we missed the first to file, but they are still meaningful. The overall pipeline is about 100 products as we speak, we will tick in the pipeline. And out of that about, I would say, around 20 that will be considered what we call the complex generics. But as we discussed many times in the past, it's hard to predict on this product. So your observation is correct. What we absolutely did is that we're relooking our portfolio, and we are focusing on products that we believe that we have a good chance to be first to market as time will come.

Understood, Erez. Erez, if I were to just extend this question then to, let's say, a sema filing or abatacept filing. What gives you confidence on getting approvals on those filings? Even in case of abatacept, now that Bachupally, we have got a CRL on rituximab. I'm just wondering if -- I know there's always risk to approval, but how should we think about management's confidence in getting approval for sema in Canada or next year as we think about the abatacept?

So on abatacept, let's go with abatacept and I'll go to sema after. On abatacept, we are supposed to submit the BLA, and I'm very confident about it in the end of December of this year -- calendar year, end of end of December 2025, which is exactly the date that we aim to. Here, I have a high level of confidence. It's also important to us because it will open the door for us to launch also the subcu, which is the more important SKU at the beginning of 2028, subject to settlement, of course, of the IP. The confidence comes that we are not doing only with Bachupally, but we increased the chance because we will have also for the United States, CMO that will make it, the product. I'm less concerned about the European approval because Bachupally was already approved by European, but not yet by the U.S. FDA.

And also, in the case of the U.S., we don't yet know what will happen with the tariff on biologics, while we feel now more comfortable giving all the press that likely there will be no tariff. We need to see when the guidelines will come. But as a balance sheet, we don't know, and we felt the need to have a backup also there. So we will -- if we will not be able to launch from Bachupally we'll be able to launch from the United States. And this will enable us also a potential challenge, if will happen on tariff.

On the sema, we are expecting the feedback from Health Canada in the next few weeks. It can be any day, but it can be within the next few weeks. And we know if we get that efficiency or not. I'm certain that we will launch all the 12 million pens that I discussed with you last time, obviously, if it will not be in Canada, it will be in other places. So the launch is going to happen. The question, of course, if we get a CRL or we'll get something in Canada, obviously, the pricing may be different. But I'm confident that we will sell the product. The question is which market they would come. Can I guarantee that we'll not get the CRL, though I cannot, I wish.

The next question is from the line of Damayanti Kerai from HSBC.

My first question is again on semaglutide. So Erez, can you remind us the legal status, which was underway in India, litigation with Novo on semaglutide?

Sure. We are challenging the patents in India. And it's in the -- currently in the high court in Delhi. All the hearings were done, and we are waiting for the decision of the judge. We don't know exactly when she will submit her decisions. And likely that we ever will not like the decision will appeal. So likely that it will continue after but at this stage, the hearing are done, and we are waiting for the outcome of the decision of the judge.

Sure. And just to clarify, this outcome should not be impacting your plans in the ex-India market, right? The markets outside of India?

Depends what will be the decision of the judge. What we are seeking, we believe that the patent is invalid. And in any case, as we speak today, by the decision that was done in May, we are -- we can produce an export, not to do it in India, but the court in the decision back in May on the -- allowed us to continue to make the product and to export it. In terms of -- in the current state, we can launch in India only at patent expiration, which is right now dated to March '26.

Okay. That's clear. My second question is going back to abatacept. So just clarifying earlier discussions. So did you mention you have a CMO in place to manufacture that product in case Bachupally takes some time to get the clearance from the FDA? Or what is the arrangement? Like what kind of risk mitigation strategies are in place?

Sure, correct. So we will have -- I did mention that we will have a CMO in the United States to produce abatacept, in addition to our capacity that is built in Bachupally, India and it's mitigating 3 risks.

Hello.

Can you hear me now?

Yes, I can hear you now.

So it's addressing 3 risks. One is in a case that it will be again, CRL or any regulatory challenges that we will be able to launch from already approved FDA sites in America. Second, if there will be any tariff or any other potential restriction or regulatory burden assets related to make or sell biosimilar in the United States. And number three, to increase capacity. It's allowing us more capacity in the case that we will get nice market share. So we're absolutely going with the CMO option in the United States.

Okay. That's helpful. And my last question is for semaglutide, I understand you're working on your in-house fill and finish capacity. So can you share the update on that project?

It's going on. It will not impact the launches in the next 12 months because by the time that we will have to submit and qualify it, it will be post approval in all the countries. So the -- working with the partner that we have today. This is the famous 12 million units that we discussed in the past. This is still relevant and maybe with some upside. But right now, I think we are about the same range. And this will happen with the current partners, but we will have two cartridge lines in FTO-11. And this will be significantly expanded capacity to many, many more millions. But let's see that we let's say, in that respect, it can go to even up to $50 million, but it's all theoretical at this stage. It will be relevant not for the next 12 months, but for the period after that.

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

First question on the India market, India business had a strong growth in the quarter. Is there anything in particular that helped you? And was there any impact related to the GST disruption in the quarter?

Yes. So we manage well the GST. So the GST was not a significant obstacle for us. We manage that well. It's just execution of our strategy, the way we discussed it for many quarters. We identify the therapeutic areas that we want to focus on. And we made several inorganic moves to buy brands that allow us relevant access. So as well as licensing of innovative products. and just working well and it's likely to continue. We said all along that we believe that innovation will allow us to outpace the market, and we feel very, very comfortable now about that strategy. I think more and more people see that now.

Understood. You have recently done this acquisition of the Stugeron brand from Janssen. Can you give some idea about what sort of revenues does that business have in its acquired form.

So it's 100 plus in terms of size, something like that.

$100 million?

No, INR 100 Cr, this is in India.

In Delhi, in India.

Yes, India.

That is India.

Bino, India and emerging markets put together.

Is INR 100 Cr. And for that, if I'm right, you paid USD 15 million.

Correct.

Okay. Understood. And any benefit of that in the growth for the quarter is some 20 days of that part of India business?

Not much.

No, no, it was very...

Insignificant.

Yes. You can take it as no real impact.

Got it. And my last question on the margin outlook beyond REVLIMID. Of course, we keep asking this every quarter. But if you look at current quarter, even with Lenalidomide, if we remove the other income from the EBITDA margin, it is below 23% and with Lenalidomide further coming down in the next quarters, it may fall even further. So do you still fully stick that for full year FY '27, you will get back to 25% EBITDA margin?

I'm not sure how did you get to the 23%. I'm aware of 26.7%. But nevermind. Yes, absolutely. Lenalidomide is with higher margin, everybody knows that. And naturally, it's impacting and anticipating that we are discussing for 4 years. We knew exactly when Lena is going to go. And it's happening exactly as we discussed. We are addressing it with a lever that I mentioned, growing the base, contain the cost of BD and focus on these key products. I absolutely believe and I'm maintaining it that in the next 2 years we will absolutely get back to the growth and to the margins.

The question is, what will be the journey in this point of time. The more sema we will have, the more growth we'll have, the more BD we'll have, we can actually do it much, much faster.

So we are maintaining our commitment for the margins, we are maintaining our commitment for growth. The question is what will be the scenarios between sema, abatacept and BD primarily. And of course, because on the levers that we can control better, we are very confident that this is the base and the cost.

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

My first question is on the U.S.-based business. There has been a lot of price erosion over the last 3, 4 years since you have launched REVLIMID how is the base today versus, let's say, before REVLIMID? Is it up, down? If you can give some color so that we get a sense where we should assume the number post-REVLIMID?

Sure. So it went down. It went down primarily not so much on volume. There were some products, about I think 5 that faced competition and price erosion, and that's what took it down. It's not significantly down. Most of the decline that you see is Lena, Lenalidomide but if you want to compare, it is done.

And do you see it sort of stabilizing now from the current level? Or do you think there is scope for further price erosion. And if you can just give some color on the pricing dynamics in the U.S. at this point? Anything has changed?

No, no change. I think it's stabilized. And I believe that it stabilized also for a while. We saw the products here and there but yes, I don't foresee additional trends like that in the coming quarters. On the base products. The erosion that will be will be on some of the launch products, the products that we launched, those can still face erosion because not all of them, what we call exhausted their potential erosion but it's insignificant as we speak.

Okay. My second question is on sema, this $12 million that you mentioned, you feel confident about selling. So if not in Canada, where will this volume be absorbed in your view, which market.

Sure. So we are going to either directly or to partners going to obtain approval in the next, let's say, 12 to 15 months in 87 countries, most of them are very small. The notable countries besides Canada will be India, Brazil, Turkey. And then we have partners that are selling in several countries of Latin America. So I cannot highlight a particular market and also in Asia. We have also B2B partners that also preparing their own launches, and we have partners on both the API as well as [indiscernible]. So I believe that the main markets that I mentioned can take, let's say, the lion's share of this quantity. Depends, of course, on the success and how -- and the date that we will actually launch. And the rest will be taken by the B2B parties. Also, the markets that I mentioned are divided to 2 types of countries. The COPP countries and the non-COPP countries. So it will be a certain sequence in which it will come to play. So far, and the demands that we have, we have already just the orders that we are discussing and gives me confidence that if the approvals will come that we'll be able to sell that, yes.

Erez, if I can just add, like this is for 2026. Now what about 2027, how does this 12 million move up in 2027 in your estimate?

So it can move up even to -- for sure to 15, but it can move up even further than that. It depends on the evolution of the product. and the qualification of FTO-11, which will significantly ramp up the capacity will be towards the second half of 2027. I'm talking about calendar not FY.

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

I wanted to understand a bit on the -- I think we've delivered double-digit growth in the ex-U.S. markets. Are we confident of maintaining this trajectory over the next 1 or 2 years? That's my first question.

Yes, very much.

Okay. And could you highlight any key drivers? Like do we have like new launches lined up, what can help that steady growth? Because India especially 13% was quite a good number, so ahead of market. So just wanted to understand what could drive it.

So each one of the markets, we have different drivers. So if you want, I can highlight the markets for you the main markets. In Europe, it's primarily a combination of the NRT business, the leverage of the U.S. portfolio in which the pipeline is coming up and the launch of biosimilar rituximab, denosumab and bevacizumab that we had in the U.K. In the case of India, it's obviously the -- it's primarily our inorganic move that we made on innovation and the acquisitions of brands that we did in addition to a normal growth that we had on the legacy pipeline.

So I always mentioned that in India, our legacy pipeline will be like the market and what we are adding value is in the places in which we are bringing products better than the standard of care. This is the strategy and now that we are accumulating enough of those is starting to be shown. It took us, I say, I'm sure we all remember quite a few years to build that. In the emerging markets, it's primarily again leverage of the generic business, especially on injectable and oncology as well as biologics, all of our biologics is going to emerging markets. And in each one of them, we have SLA depends on the market, selective innovation that we also licensed as part of our deal with India. In the case of Russia, it's primarily our legacy brands as well as some licensing and acquisition that we made in Russia on both the OTC as well as the as the Rx. API is primarily the focus on peptides. And on both -- there is also a lot of demand for the peptides on the API side. I hope I covered the markets for you if I forgot something, please...

Make sense, and my second question is just on abatacept, you said we can submit the BLA by end of calendar year '25. So the Phase III trial, I'm assuming is complete now, and we're expecting sort of an update on that in terms of whether that's completed successfully? Or how should we think about the progress on the trial itself.

It should be completed very, very soon and so far so good.

Okay. Okay. Understood. Got it. And if you file on time and so basically, the approval will be in line with the expiry in early calendar year '27. That's how we should think about it.

That's the idea, yes.

The next question is from the line of Dr. Kunal Dhamesha from Macquarie Capital.

Just the first one on abatacept. So basically, the first filing that we'll do would be for IB version, right?

Correct.

And what kind of the further development, the subcutaneous version would require?

Can you repeat, sorry?

For the subcutaneous version what further developments...

There is another set of tests that allow us to submit the subcu, but it doesn't require additional study.

Okay. So no Phase III, but some form of characterization, et cetera.

Correct.

And the first filing that we'll do by December 2025. Would that include Bachupally as a manufacturing source or the CMO as a manufacturing source?

Bachupally will start. And the CMO will be a tech transfer from Bachupally.

Okay. So then it might -- so Bachupally would be still the keystone for us in a way.

Yes. But in the United States, I absolutely building that we will be able to be, especially for the subcu, the CMO will be enabled as day 1 launch. The mitigation that we discussed before.

Sure. And the second one on semaglutide Canada. So basically, let's say, over the last -- since we talked in the earlier Q1 earnings call. Your expectation about the market formation has that changed now on the day of patent expiry? Or how should we think about it given that there are more filers whose filings have been accepted by the regulatory authority in Canada?

No. So nothing changed, at least in my perspective, just to make sure that, that we are expecting in the market to be competitive. There will be multiple players. The question is just the day they will get approval. So it's all about that. That did not change. I believe that the market formation will be as expected. Will -- once there is an approval, there is an application for reimbursement. And according to the rules in Canada of the pricing, that's how the market will play. So nothing changed in the way I think the game will be played is now it's about obtaining approval and obtaining a good outcome from the litigation in India.

Sure. And lastly, on India for sema, when I look at -- we have basically conducted trial for Ozempic and Rybelsus. So does that enable us to launch the weight loss version, which is Wegovy generic as well?

For Wegovy we'll have to have an application by itself. We'll have to...

It would be a separate application?

It will be a separate.

The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services.

Sir, just on a steady, robust traction of biologics across European markets and Indian market, if you could just highlight how much has been the total biologic sales across different markets on an annualized basis to date.

I'm sorry, It's something and your voices is too low. Just to make sure you asked how our sales evolve in India and Europe, that's what they asked, the question is.

Biologic sales, cumulative biologic sales across different markets.

The market or us, I'm sorry.[indiscernible] so we launched in Europe Hopefully, I'm answering it correctly. We launched in the Europe bevacizumab and recently rituximab in multiple countries, and we will increase the numbers of the countries as time goes by. And this is after we got the approval, the recent approval for rituximab for Europe. In India and emerging markets, we were always there. So it is going well. In the main program that we will launch in Europe will be denosumab and abatacept. This is the main pipeline. The same product, obviously, will be launched in India and emerging markets. But in India, we'll also have pembro as well as nivo. So that's right now the plans in those countries.

And sir, with respect to rituximab, now that we are thinking of having a CMO, will that require let's say, at least the stability data from CMO side and hence maybe more time to sort of get through the regulatory process.

The CMO that I mentioned is for abatacept, primarily for the subcu and it will require a tech transfer as well as stability. But we believe that we will be able to be ready for the big quantities, which will be in the beginning of calendar '28. So we should be good by then.

Understood. And just lastly, on the PSAI segment, where there has been improvement in the gross margin quarter-over-quarter, while we are still lower than the historical gross margin but if you can just help understand in terms of the current gross margin and how to think about it over the next 1 to 2 years?

So we expect, I think, going forward, PSA gross margin range of 20% to 25%.

Compared to 15% currently, right?

No, this quarter is at 18%. And because I think here, based on the product mix and then I think leverage of the all the overheads and everywhere. I think the range you can expect then going forward, 20%, 25% PSA gross margin.

Got it. And you -- there was an earlier comment of peptide sales within PSA. So if you could quantify how much has that been?

We build a capacity of up to 800 kg. Naturally, we are not even close right now to this level and right now, it's very small, but it will grow as it will come it.

The next question is from the Kunal Randeria from Axis Capital.

So firstly, I would like to understand how your R&D will take shape given that you're developing a few biosimilars like pembrolizumab and daratumumab and of your R&D budget, how much you would be earmarking for biosimilars and Aurigene. So basically, your non-generic business.

So just to clarify, daratumumab, we are now developing. It's a product that we license from Helios from a Chinese company. Denosumab was developed by Alvotech, and we have a partnership with them. And so in that respect, the main products that are done internally is still abatacept that we basically finished the clinic of it. As you can see, the R&D is about 7% right now of the sales and likely that it will stay in this range for now.

Sure, sure. And secondly, again on semaglutide. So do you foresee a situation where the market may not turn out to be as favorable as you think in Canada because besides the number of filers, which are increasing by the day, there are perhaps risks. Let's say, from a compounding pharmacy, which is intending to enter Canada and even the innovator has seen volume pressure in several markets. So there might be a situation where they are aggressive on pricing. So -- is there a risk of the market deterioration?

First of all, I mentioned all along, I think that Canada market will be competitive with multiple players. So I also now in 33 years within pharmaceuticals, I learned not to forecast launch. I always mentioned that it can range from 0 to many, many millions of dollars. So -- but yes, the answer is I anticipate that Canada is going to be very, very competitive.

I anticipate that Canada will be very, very competitive. As players will get an approval.

Right. And if I can, if you don't mind, ask is there -- I mean, any particular price erosion that we can see from the current levels, maybe 80%, 85% kind of price erosion that will eventually settle down to?

I have no clue. I wish I do.

[Operator Instructions] The next question is from the line of Vivek Agrawal from Citi.

My question is related to NRT and branded markets like India, EM. So the growth was quite decent across the board and really a commendable job. So just want to understand how to look at the investment that you are making behind these markets? Or are these are sustainable investments or, let's say, it can be cut down in future?

First of all, I don't think you see the investment in emerging markets. As we speak, we got the market in certain waves. And the markets that we did not get, we are still managed by Haleon, and we are paying them a fee for doing that for us. So naturally, as market is coming to us, the fee for Haleon is going. And therefore, it's -- the margins are going up because we don't need to pay them. And we are starting to invest in the market that we invest are the only markets that we've got the beginning, meaning U.K. and Scandinavia.

So that's -- so we -- right now, my base is not yet -- it's absolutely not a steady state. We have 2 more waves to go and before we go. What I can tell that so far, it's exceeding our expectation both on the pace of growth as well as on the margin. In both cases, it's much better than what we presented internally when we approved the project. So it's a kind of a good start, I would call it.

I understand, Erez. And just a related question here. It's on OpEx basically. So on absolute basis, how we should look at the OpEx in FY '27. So can it continue to increase, let's say, from '26 level, maybe relatively at a lower pace? Or is there any possibility of absolute decline in OpEx, let's say, in '27 compared to FY '26.

So Vivek, if you look this quarter, we have at 30%. And then if you adjust the one-off, I think we are close to 29.1% at somewhere and then for any modeling, I think we'll be in the zone of like 28% to 30%.

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

Just on rituximab again. So given this is the second successful PAI and CRL that we've had, are there any specific challenges related to the speciality? I'm asking also because this is a biologics facility and our track record, otherwise on compliance has been quite excellent in recent years.

So there is nothing specific per se. We -- it's all obviously, as this is a sterile plant, we have -- we've got queries that are related to the nature of the site. We believe it's addressable. In a case that they will come with another set of questions. What we will do is that we will submit. We have an alternate line as a backup, which is FFF 2 that we feel that FFF 2 is a fill and finish or for those that are on the line.

So we may need to move the product from 1 line to another in a case that it will not come well on the first one. So it's primarily related to the fact that the first line that we have FFF 1 is some of the design of it raised those queries and also last time we are addressing it. But if it will not work, we'll have to move to FFM 2. I'm not worried on the not getting approval. I'm certain that we get approval. Just to remind all of us, rituximab for us was deliberately chosen in order to start the regulatory process on time to make sure that by the time that abatacept will come, Bachupally will face those kind of stuff. And this is -- it's serving its purpose and hopefully, we can absorb it soon.

Okay. A quick one on tocilizumab biosimilar. It's been a while since we got an update on that one. Can you share the status of that program?

We don't -- we are not planning to have it as a global product. We will have it only for India.

Yes. And then one quick follow-up on the previous question. The cost reductions that we have alluded to in the past, 500, 600 basis points of reductions. Are these reflecting to a small extent in the first half numbers? Or should we wait for the coming quarters for this to actually the numbers.

Yes, I believe so. You can see that despite the fact that Lena is going down. We are maintaining our reasonable numbers. So it's absolutely a reflection of those mitigations. Of course, the full force of it will come as quarters will come. And we have also shared the numbers. So we believe that with SG&A of around 28% and R&D of around 7%. It comes to the famous 5% to 7% that we set, and there is even opportunity for more if we need to. So we maintain that we will -- we are very, very sensitive to the margins. And naturally, we're discussing it every time, and we will absolutely be really disciplined on those.

[Operator Instructions] Next is Gautam from Leo Capital.

My question was on the GLP-1. Do you only plan to do fill and finish or do you also manufacture API drug substances. How much manufacturing capacity do you have? And which markets are we targeting for this?

So we have CTO-6 making the API. I mentioned that the overall potential of all the investments that we put can reach even 800 Kg, but we are very, very far from this output at this stage. We've don't need also. Just that -- but we are preparing it not just for semaglutide, liraglutide, but also for 40-something peptides that we identified and we are going to develop either by ourself or with the partners in the next coming years.

So right now, we will have sufficient capacity for the demand that we'll have for the liraglutide semaglutide in the submissions to the relevant authorities of all the peptides that will be of patents, including tirzepatide that will be obviously an R&D project, but it's very important to submit it in relevant markets. And we are also making the product, we are planning to make it in FTO-11 and also with the partners.

In general, the approach will be that we will have for every important product in-house capabilities as well as partnership capabilities for all kinds of risk mitigations.

Okay. So can you just like expand on the fill and finish also what's the capacity we have and the status on that and the markets we are supplying for that?

I think we discussed it. We have 12 million pens for the semaglutide with the partner. We can -- and we have 2 lines of cartridge that will be an FTO-11, they can reach even 50 million, but right now it's Theoretical. The cartridge lines are on the way and they will be assembled and will be ready, not for these 12 months, but after.

The last question for today comes from Sumit Gupta from Centrum Capital. Suma, please go ahead.

Yes. So just one question on the Indian business. So sir, can you segregate the volume and price growth?

The volume and the price.

So Sumit, the price is like in the range of normal 5%, and then the balance growth is like mainly from the new products and volumes.

Okay. So going forward, like should we expect this to continue? Or can we expect any significant growth in volumes also?

You should expect to continue, we will have new products volume, and the price will be in that range that MVN shared with you.

We reached the end of the call. I now hand the call over to Richa for the closing comments.

Thank you all for joining us today. We truly appreciate your continued interest in Dr. Reddy's Laboratories and the time you've taken to engage with our Q2 FY '26 results. If you have any further questions or need any additional information, please do not hesitate to contact the Investor Relations team. Have a great day. Stay safe and take care.

Thank you.

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.

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.

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.

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.

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.

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.?

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

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?

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.

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?

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.

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

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.

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

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.

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.

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?

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%.

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.

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

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?

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.

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?

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.

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?

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.

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?

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.

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

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.

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.

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?

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.

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?

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.

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?

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.

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

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?

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.

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?

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.

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

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?

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.

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?

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.

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

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

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.

So there is not much in this quarter is what you're referring?

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.

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?

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.

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?

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

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

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.

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.

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?

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.

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?

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.

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?

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

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?

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.

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.

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?

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

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.

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.

Just the data point on the field force, [indiscernible]

Yes, about 10,000 people in 50 teams.

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

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?

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.

Okay, yes. Second product, I missed that. So if I you can just...

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.

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?

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.

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?

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

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?

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.

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?

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.

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

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?

Yes.

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?

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.

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?

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.

Would it be possible for us to quantify?

I don't want to give you unreliable numbers. It's big. Potential is big. I don't know to say how much.

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

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

It's INR 120 crores.

Got it, sir. Sir, my second question was...

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.

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?

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.

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

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?

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.

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?

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.

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?

2x for calendar '26 will not happen.

'27, sir. You said similar number for '26 and '27, right, so I was more wondered on '27, not on '26.

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.

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

Depends on the definition of slides....

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

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?

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.

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.

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

So 1 pen per week is the...

Yes, it's like -- we will end to 1 pen a week.

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

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.