Prepared remarks
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. 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 rebroadcast 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 one-time provision related to the impact of changes in the implied benefit obligations under the new labor law codes in India. Adjusting for this one-time provision, the EBITDA margin was 24.8%. All financial figures in this section are translated into U.S. dollars using the 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 at 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 one-time 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% year-over-year and 2% on Q-o-Q. The year-over-year increase was primarily on account of ongoing targeted investments to support the long-term growth of our branded franchises, namely the acquired NRT Consumer Healthcare business and branded generics. Adverse Forex impact, as well as the one-time provision related to the new labor law codes, SG&A spend accounted for around 31% of the revenue during the quarter, which 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 of 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 a large part of the investment related to abatacept has been completed. The spending this quarter also included one-time 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 one-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 at INR 2,049 crores, which is USD 228 million, a decline of 11% on a year-over-year basis and 13% sequentially. The EBITDA margin stood at 23.5%, lower by 401 basis points on a year-over-year and 322 basis points Q-o-Q. Adjusting for one-time 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 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 gains this quarter in comparison to foreign exchange losses 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 one-time 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 the 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 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 instruments 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 USD 89.1 to USD 90.3. RUB 2.93 billion hedge at a fixed rate of RUB 1.06 with a maturity falling within the next 3 months.
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 remains 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, advancing our key pipeline programs, semaglutide and abatacept, as well as pursuing selective business development 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 the one-time 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 Lenalidomide. Our base business, excluding Lenalidomide, 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 one-time provision related to the new labor codes mentioned earlier. Excluding this one-time provision, the 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 first-in-class and innovative therapies in India and emerging markets, 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 the expert committee in the SEC under Central Drug Standard Control Organization. Further, necessary local manufacturing licenses 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 directorate for our semaglutide injection, which outlined a request for additional information and clarifications on the specific aspects 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 the abatacept biosimilar candidate in December 2025 as per the schedule. Following the positive opinion for CHMP, we received European Commission approval for the 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 launch preparations are underway for the U.K. and other European countries.
We received a complete response letter from the USFDA for the denosumab biosimilar BLA, which was developed by our partner, Alvotech. The CRL refers to the observation from a pre-license inspection of Alvotech's Reykjavík manufacturing facility. On the regulatory front, in November 2025, the USFDA conducted a GMP inspection of our API facility CTO-SEZ in Srikakulam, Andhra Pradesh with zero observations. In December 2025, the USFDA completed a GMP and a pre-approval inspection of our facility FTO-SEZ PU-01 in Srikakulam, Andhra Pradesh and issued Form 483 with five observations. We have already responded to the agencies within the stipulated times. Recently, the USFDA issued a post-application action letter in relation to the response submitted to the observations 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 two of the 46 novel drugs approved by the USFDA in 2025. Further, APSL delivered three discovery programs through its 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 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 decreased Lenalidomide sales and price erosion in certain key products. During the quarter, we continued to launch momentum, adding six 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 INR 1,896 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 a 2% increase sequentially. This performance was attributable to revenues from our innovation franchise, new brand launches, price increases, higher volumes, as well as contribution from the 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 the 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 two 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 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 the base business, advancing differentiated pipeline products like semaglutide and abatacept, driving operational efficiencies, and pursuing value-accretive acquisitions and partnerships 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 Relations from Richa Periwal. I wish both Aishwarya and Richa, who is staying 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. The first question is from Neha Manpuria at Bank of America.
Questions and answers
I have two 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.
What is driving this strong growth? We've been experiencing double-digit growth for a few quarters, but moving up to 17% or 18% in such a short time seems significant. What has changed this quarter, and how sustainable is this growth trajectory, especially the mid-teens growth, as we look ahead to the next few quarters?
The strong growth is mainly due to the performance of our innovative products, which have been well-received by the market. Typically, when launching a new brand, there is an initial period where physicians recognize and start to recommend it. This leads to a specific growth pattern, akin to the introduction of any brand. Our strategy is proving successful, as some of these brands are now in their third year since launch, and others are in their second year. You will begin to see the impact of this. Additionally, while the brand's performance has not followed the same pattern, we are raising prices with their support. The key factor driving our success is the introduction of innovations to India, which is making a significant difference.
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 guess, it's somewhere between 10% to 15%, but I'm not sure, Neha.
All right. No problem. My second question is about semaglutide. I believe you mentioned that we submitted our response and are waiting for a response from the agency. Have we not received a follow-up goal date? Also, what would be the next timeline we should anticipate for semaglutide approval in Canada?
Yes, we do have a goal date as it automatically falls six months from the response time, which takes us to May. However, this does not mean we must receive approval by that date; it can happen anytime between now and May, and ideally, by May, there will be no further questions. I cannot predict exactly when we will get a response. We are preparing for a potential launch even in Q4, but if that does not happen, it will be in Q1. Overall, we should expect to launch in Canada sometime between the end of February and May.
The next question is from the line of Damayanti Kerai from HSBC.
My question is about the India business. You mentioned that innovative products are helping you achieve strong numbers. I have two questions. First, what is the sustainability of these growth figures in India? Second, can you clarify if the December quarter reflects any benefits from the previous quarter, particularly following 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 spills due to 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 have not shifted significantly from our recent conversations. We are aware that competition will eventually emerge in Canada. Novo Nordisk has indicated their interest in entering the market and has even begun providing some organizations in Canada with what they refer to as their own generic brands. We have made similar arrangements. I still believe that if we receive approval, we have a strong chance of being either the sole player or facing only a few competitors initially. Over time, additional competitors may enter the market, but in my view, that potential still exists.
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, most of the markets will be on the lower end of the spectrum, but it's still present. We have not received indications that it will be lower. Over time, as approvals come through, we expect to see very competitive markets. There will be a brief period, lasting from weeks to months depending on the market, where prices can be healthier. However, we are preparing for another highly competitive market.
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 visibility of our expense levels, etc., what shall we look forward to in terms of EBITDA margins in Q4 and FY '27?
For 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 to. But what we can say is that the decline that you see in America is primarily Lena. And actually, without Lena, we didn't grow. So 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 timelines now, latest timelines for denosumab and rituximab in the U.S.?
For denosumab, Alvotech needs to respond to the deficiency letter, and the outcome will depend on how the USFDA reacts. Therefore, I can't provide a definite timeline, but it is likely to be in the second quarter or possibly later in FY '27. I'm not counting on it happening soon. The standard timeline for evaluating the deficiency letter and establishing a new goal date typically extends into this timeframe. However, in biologics, receiving multiple deficiency letters is not uncommon, so we will have to wait and see. As for rituximab, I believe you inquired about both unless I misunderstood. Yes, correct.
The next question is from the line of Abdulkader Puranwala from ICICI Securities.
So, regarding semaglutide, I've noted your comments about the expected entry in Canada between February and May. What about other countries where the patent expires in March, like India? Additionally, we previously mentioned a capacity of 12 million cartridges. Will there be an increase to that? When can we anticipate meaningful traction from this product?
The starting point is India, where we will launch on time on March 21, which happens to be my birthday. In Canada, as I mentioned, the launch could be any time from now until the goal date of May. I can't specify exactly when it will happen within that timeframe, but we expect to have an approvable product ready for launch. Additionally, we are using our already obtained COPP for media to register in several other markets, totaling over 80. The most significant launches will be in Brazil around July and in Turkey around the same timeframe. We have partners both in India and internationally interested in our semaglutide for their markets, and we are also securing licensing fees for these activities, not just for this product but others as well. Overall, the plan for the 12 million pens remains unchanged for now, though we can exceed that number later. Currently, we are primarily using Stelis for fill and finish, but as time goes on, we will have more capacity and continue to utilize both our partner and internal facilities.
Got it. Just to follow up on the biosimilars, we have received a Complete Response Letter for denosumab and rituximab. How is that affecting our estimates for the overall biosimilar launch timelines? Additionally, is there a timeline for the launch of abatacept that we are planning internally?
Sure. The delay in the launch of rituximab is primarily due to our partner Fresenius. Rituximab was mainly utilized to qualify Bachupally and has performed well, perhaps even leading to excessive engagement with the authorities. Overall, we expect the launch to be delayed by more than a year compared to our regional plan. However, we have already launched in Europe and are making progress there as well. The market there remains very competitive. Regarding denosumab, due to the efficiency letter, I can't specify the timeline for its response, but it is likely to be delayed by at least six months, if not longer. I do not anticipate any impact from abatacept. Denosumab is produced by our partner Alvotech in Reykjavík, Iceland, while abatacept is manufactured on different lines in Bachupally, India. We need to secure approval for abatacept within the designated timeframe, and we submitted the application on schedule. We expect to receive approval for the IV product by the end of 2026 and for the subcutaneous version by January or February of 2028. We believe we are still on track for those timelines, and we need to ensure that we achieve these goals. So far, abatacept appears to be moving 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 semaglutide 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 the normal regulatory process does not do all plant inspections from Health Canada, like the USFDA has.
No, no inspection.
Sure, sure. And secondly, 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 innovator and hence, the substitutable status whether the generics would be substitutable is kind of questionable. So if you could provide any color on this, how 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 product once we're going to 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, the wage definition has been revised in line with the new labor law codes. It's like whoever employees on the payroll of the company as of December 31, we have 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.
Europe is a very important market for abatacept. We plan to pursue this both independently and with partners. We need to ensure we cover all markets, as there are some where we lack the capacity to reach physicians. Our goal is to cover as much ground as possible. In tender markets, we can manage on our own. The launch is likely set for July.
July, we have filed submitting July 2026 and expecting approval by 12 months.
Yes. So July 2027, you should expect a launch in Europe.
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 one who's completed Phase III, maybe one 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. The plan is to launch abatacept in every country where there is demand for this product, either independently or with a partner. We are aiming to launch during this timeframe in Europe, the United States, Japan, Canada, and any market where there is a demand for this product.
The next question is from the line of Shyam Srinivasan from Goldman Sachs.
Just the first one 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 we had about INR 600 crores last year same time, and we had INR 1 billion pre-tax 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?
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, firstly, yes. Right now, we see some potential upside to the model. It's not a significant upside, but it appears that we might be on the higher side of single-digit growth. There is a possibility to reach double digits, especially since we are participating in certain tenders like those in Brazil. Winning one of these tenders could lead to a substantial increase in sales. Overall, things look positive, and we seem to be exceeding our internal expectations. In fact, the demand for this product is greater than we anticipated.
Thank you for your question about profitability. While we have engaged in additional brand building, I would like to know if there has been a significant change in profitability.
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 a fair assumption will be that we'll stay with 25%.
Got it. Regarding the last question about your opening remarks, Erez, on Novo's strategy in Canada, I'm curious why they would want to partner with a local organization. They didn't originally file or defend their patents. Is there a possibility that a lower-priced version could slip across the border into the U.S.? Can you share any insights into their reasoning behind this?
It's beyond my paycheck. I'm not managing Novo Nordisk; I hardly manage to 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 launch 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 Canada. And if it will be bought, 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 diabetes.
The strength of the product is relatively lower for weight management, correct?
Many people use Ozempic for the same purpose. However, the equivalent of Wegovy will be available later, as we plan to launch it in March. In India, we will offer all strengths, including both the indication and the oral form.
Got it. And just one more from my side. R&D spend guidance, if you could share?
Sorry, what to share?
R&D guidance.
The guidance remains in the range of 7% to 8%, which is what we communicated earlier.
But sir, now that major product, I guess, it was with respect to have largely done. So you think that we will still be 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 finish a budget of products, we obviously want to develop more products. We have aspirations to launch hundreds of products in the next 15 years. So there are enough products to develop. So it's more about 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 can it still grow Y-o-Y maybe at a lower rate? So if you can help us understand.
Well, Vivek, if you look at the lower Lena sales for the quarter, our SG&A as a percentage of sales remains around 30%, not factoring in the labor law codes impact. Additionally, favorable foreign exchange effects have positively influenced the top line, and our SG&A spending in Russia and Europe for the NRT has also been affected by foreign exchange. We are continuing to invest, and our branded business is experiencing solid growth in India, emerging markets, and NRT. Despite our continued investments, we believe we have control over the overall SG&A at 30% of sales.
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 next year? Or it can still grow from here on?
You will notice a slowdown in growth. This moderation is something we anticipated and have prepared for regarding the post-Lena period. We were aware of its implications and it did not catch us off guard. Part of our strategy for managing costs, which I mentioned as a key principle, involves controlling expenses. For SG&A, we aim to manage discretionary costs effectively, similar to our previous discussions. The growth rate of our costs will be less than half that of our revenue growth.
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. We have growth in all three segments in Russia, which includes retail, hospitals, and both Rx and OTC. This growth comes from both existing products and new products.
Could you provide some insight into the pipeline of new products expected in the upcoming quarters and years? How does the pipeline look, and will this growth be sustainable once we establish a high baseline?
So the growth in Russia is sustainable. Not always you'll see a 21% growth every quarter, but healthy double-digit in Russia is absolutely sustainable.
The next question is from the line of Shashank Krishnakumar from Emkay Global.
I have a question about our sema tablets filing in India. I think the SEC has requested some on-site verification of our Phase III trial data. Does this typically have a significant impact on approval timelines, or is it easier to resolve? I would just like to understand that.
I don't have any concerns on this one.
Got it. That's a related question. After March, pending approval, there won't be any litigation concerns regarding the launch of tablets in India, correct?
Correct.
The next question is from the line of Surya Patra from PhillipCapital.
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 two innovative APIs. So how important this opportunity be for us? And when of that we fructifying? 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. As you may recall, we have focused on our CDMO efforts over the past two years. We aim to engage with meaningful products and initially started with Phase I and Phase II projects. We are pleased that our efforts from two years ago are now beginning to bear fruit. While the current impact is not substantial, I believe we can expect to see over $100 million in growth from this initiative in the next two to three years. In the broader context, it may not seem large, but for the CDMO business, it represents a significant opportunity as it will enable us to build 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 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 zero. It doesn't mean that we will not sell, but let's say just for clarity, it will help everybody.
Another generic, another molecule...
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?
In response to your question, particularly regarding the sales we've highlighted, especially in Europe and emerging markets, there is indeed a foreign exchange factor to consider. Furthermore, in both selling, general and administrative expenses and cost of goods sold, we should also factor in higher import prices. Overall, if you look at it, there’s a net effect that leads to a positive impact on our 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 very significant. I don't remember exactly the numbers, but it's not huge.
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 we assume 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 think we feel very comfortable with a growth rate of over 15%. It could exceed 19%, but I wouldn't advise planning on that for now. We can definitely say that 15% to 60% is sustainable. The potential for higher growth depends on specific scenarios, but it is possible. Additionally, we are still working on business development, so further developments may arise, but we cannot make any promises about that.
Okay. That's helpful. My second question is on the European side, ex of NRT where we have seen sales mellowing down to 15% growth even with the launch of biosimilars. So again, the question is, as these biosimilars scale up and probably with the launch of abatacept in the European market. So can the European region, ex of NRT scale north of 20% or so?
It can happen, but it depends on the scenarios. Regarding Europe, we are proud that in 2018, our sales in Europe were just below EUR 100 million. Looking ahead, in the next two or three years, we expect to see ten times that amount. This highlights the significance of the euro for us. Our activities in Europe are not limited to our operations there, but also include partnerships. This aspect is crucial since we won’t have capabilities in every market. So, it’s feasible if conditions allow. However, we are not setting specific guidance on this. We are stating that most markets should experience double-digit growth, with the exception of the United States, which is expected to see single-digit growth, and this is without factoring in the impact of Lena. As I mentioned, that arrangement will be finalized next quarter, which will influence our outlook.
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 zero REVLIMID sales, can the gross margin territory scale down further?
So we can expect without 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 varies, but the range is like 50% to 55% is the range.
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.