管理層發言
Ladies and gentlemen, good day, and welcome to the Dr. Reddy's Q3 FY '24 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Ms. Richa Periwal. Thank you, and over to you, Ma'am.
Thank you. A very good morning and good evening to all of you and thank you for joining us today for the Dr. Reddy's earnings conference call for the quarter ended, December 31, 2023. Earlier during the day, we've released our results and the same was also posted on our website. This call is being recorded and the playback and transcript shall be made available on our website soon. All the discussions and analysis of this call will be based on the IFRS consolidated financial statements. The discussion today contains certain non-GAAP financial measures. For a reconciliation of GAAP to non-GAAP measures, please refer to our press release. To discuss the business performance and outlook, we have our CEO, Mr. Erez Israeli, and our CFO, Mr. Parag Agarwal, and the entire investor relations team. Please note that today's call is a copyrighted material of Dr. Reddy, and cannot be rebroadcasted or attributed in press or media outlets without the Company's expressed written consent. Before I proceed with the call, I would like to remind everyone that the safe harbor contained in today's press release also pertains to this conference call. Now, I hand over the call to Mr. Parag Agarwal. Over to you, Parag.
Thank you, Richa, and greetings to everyone. A warm welcome to our quarter three, FY '24 earnings call. Thanks for joining. I'm pleased to take you through our financial performance for the quarter. For this section, all amounts have been translated into U.S. dollars using a convenience translation rate of rupees 83.19, which is the rate as of December 31, 2023. We continue our growth trajectory in the third quarter and delivered another quarter of financial reserves with the highest-ever sales and robust operating profit. Consolidated revenues for the quarter stood at INR 7,215 crores, which is US$867 million, and grew by 7% year-on-year and by 5% on a sequential basis. The growth is led by the generics business in the U.S. and Europe with contributions from both the base business and new product launches. Consolidated gross profit margin stood at 58.5% for the quarter, a decrease of 73 basis points over the previous year and 18 basis points sequentially.
The decrease was due to price erosion for certain of our existing products, partly offset by improvements in product mix and productivity. Gross margin for the global generics and PSAI businesses were at 61.9% and 29.4% respectively. The SG&A spend for the quarter is INR 2,023 crores, which is US$2.3 million, and increased by 12% year-on-year and 8% quarter-on-quarter. The year-on-year increase is primarily due to investments in sales and marketing activities, digitalization capabilities, and new business and innovation initiatives. The SG&A cost as a percentage of sales was 28.0%, higher by 148 basis points year-on-year and 72 basis points quarter-on-quarter. The R&D spend for the quarter is INR 557 crores, which is US$67 million, and has increased by 15% year-on-year and 2% quarter-on-quarter. The R&D spend is at 7.7% of sales, up by 60 basis points year-on-year and lower by 20 basis points quarter-on-quarter.
The investments are driven by ongoing clinical trials for differentiated assets, as well as other developmental efforts to build a healthy pipeline of new products across our markets for both small molecules and biosimilars. The other operating income for the quarter is INR 97 crores compared to operating expense of INR 73 crores for the same quarter last year. The other income was higher due to sales of non-current assets. The EBITDA for the quarter is INR 2,111 crores, which is US$254 million, posting a growth of 7% year-on-year. The EBITDA margin stood at 79.3%. Our profit before tax for the quarter stood at INR 1,826 crores, which is US$219 million, posting a growth of 12% year-on-year and a decline of 4.6% over the previous quarter. The net finance income for the quarter is INR 96 crores compared to net finance of INR 14 crores for the same quarter last year. The effective tax rate for the quarter has been 24.5%.
The effective tax rate was marginally higher compared to the same period last year, mainly due to an increase in the proportion of the company's profits coming from high-tax jurisdictions, partly offset by the adoption of a profit tax rate under section 115BAA of the Income Tax Act of India. We expect our normalized EPS for the year to be in the range of 24% to 25%. Profit after tax for the quarter stood at INR 1,379 crores, which is US$166 million, posting a growth of 11% year-on-year and a decline of 7% over the previous quarter. Reported EPS for the quarter is INR 82.7%. Operating working capital increased by INR 1,227 crores, which is US$148 million, compared to September 30, 2023, mainly due to an increase in inventory and receivables. Our capital investment stood at INR 307 crores, which is US$37 million this quarter. The free cash flow generated before acquisition-related payouts during this quarter was at INR 22 crores, which is US$2.6 million.
Consequently, we now have a net surplus cash of INR 5,907 crores, which is US$710 million as of December 31, 2023. Foreign currency cash flow hedges in the form of derivatives for the U.S. dollar, amounting to approximately US$672 million, have been hedged around the range of INR 83.4 to US$84.6 and AUD 1.1 million at the rate of INR 58.3 to the Australian dollar maturing in the next 15 months. With this, I now request Erez to take us through the key business highlights.
Thank you, Parag, and a warm welcome to everyone joining us today. I am delighted to report yet another quarter with the highest-ever revenues and robust operational performance. We made progress during the quarter on strategic collaborations to build mobile therapies for India and to improve our position in new avenues of growth globally. We are also humbled by the recognition received for the progress we have made on our sustainability agenda. Let me take you through some of the key highlights of the quarter. Sales and EBITDA grew by 7% each. The sales growth was primarily driven by improved market share for existing products in the U.S, continued momentum in our European business, and contributions from new products, partially offset by price erosion in certain existing products due to the competitive landscape. We generated healthy EBITDA margins at 29% and annualized ROCE at 37%. Net cash surplus was $710 million at the end of the quarter.
We entered into an exclusive development and commercialization deal with the U.S.-based Coya Therapeutics for their product, COYA 302. It is an investigational combination biologic for the treatment of neurodegenerative disease, ALS. We received approval from the UK MHRA for the proposed bevacizumab biosimilar. We acquired a leading Women's Health and Dietary Supplement portfolio of brands called MenoLab in the U.S. We made a recent entry into the U.K. consumer health space with the launch of anti-fever medicine, Ketorolac Tromethamine. We have taken steps to strengthen our business globally. The U.S. FDA completed a routine CGMP inspection of our formulation manufacturing facility, FTO-3, in October 2023, as well as a GMP and pre-approval inspection at our R&D facility in December 2023. We received four observations during the inspection at FTO-3 and three observations at our R&D facility.
We have submitted a response within the stipulated time frame. Our efforts in sustainability and energy continue to gain momentum and external recognition. We are becoming the first Indian pharma company to be featured in the Dow Jones Sustainability World Index of 2023, and retaining our place in the American market index for the eighth year in a row. We were awarded gold medal status by EcoVadis and upgraded in the MSCI ESG rating from BB to BBB. We received the Golden Peacock for Corporate Social Responsibility in 2023. Furthermore, we are the first Indian company to pledge toward a plantation initiative covering 2,900 hectares by 2028, an initiative of the World Economic Forum. Now let me take you to the key business highlights of the quarter. Please note that all the references to the numbers in this discussion are in their respective local currencies. Our North American generics business recorded sales of $401 million for the quarter with a 7% growth over the year and a sequential increase of 4%.
The benefit of market share extension is certainly a key factor. Revenue from new launches and integration of the acquired portfolio was partially offset by price erosion due to competition. We launched four new products during the quarter. We recently acquired the MenoLab Portfolio of Women's Health and Dietary supplement brands in the U.S, which complements well with our U.S. Health Care and Wellness business portfolio. Our European generics business recorded sales of €55 million this quarter, with a year-over-year growth of 8% and a sequential decline of 6%. The contribution from newly launched products has been proven in the base business volume and offset price erosion. During the quarter, we launched a total of six products across markets. Earlier this month, we entered the UK OTC Consumer Health Market with the launch of Brands Allergy Medication and Histallay. Our emerging market business recorded sales of INR 1,283 crores, a marginal year-over-year decline of 2% and a sequential increase of 6%.
The benefit of new products and price increases in certain markets was more than offset by unfavorable factors. We are on track to deliver double-digit growth for the year. We launched 13 new products during the quarter across various countries in the emerging markets. Within the emerging market segment, the Russian business grew by 3% year-on-year and 7% sequentially in constant currency. Our Indian business recorded sales of INR 1,180 crores and reported year-over-year growth of 5% and a marginal sequential decline. We anticipate the base business to deliver double-digit growth in the coming quarters. We are focusing on licensing and collaborations to bring innovation to India. The rollout of Nerivio market, which marked our entry into digital therapeutics, is showing strong adoption by doctors, indicating high patient satisfaction scores. India remains a priority market and we will continue to reinforce growth while investing in building innovation spaces in line with our strategy.
Our PSAI business recorded sales of $94 million with a strong sequential growth of 11% and a marginal year-over-year decline of 1%. Excluding sales of COVID-related products in the same period last year, sales growth was up in the high single digits. We expect sales to improve on the back of strategic collaborations with regional and global players. Last quarter, we invested 7.7% of our revenue to strengthen our R&D capabilities. Our efforts are focused on developing complex, value-accretive products, including several generic injectables and biosimilars in line with our patient-centric strategy to enable access and affordability. We continue to invest in innovative solutions through strategic partnerships, such as the recent collaboration with Coya Therapeutics on investigational therapies. We have signed nine global generic agreements, including two ANDAs in the U.S. in Q3 FY '24. We have been ramping up inventories to reduce the risk of supply chain disruption and building inventories for vital products.
We are also strengthening our position by building commercial infrastructure to leverage our portfolio for further expansion. We continue to develop our pipeline and scale up our biosimilar business, which is pivotal to our growth strategies. Our ability to source experimental innovation through strategic lead development and collaboration will enable us to address unmet needs and support the overall growth ambitions of the company. With this, I would like to open the floor for questions and answers.
分析師問答
Thank you very much. We will now start the question and answer session. The first question is from Balaji Prasad from Barclays. Please proceed.
Hi. This is Mikaela for Balaji. Thanks for taking our questions. Just two from us. First one is, what is your latest thinking on generic pricing trends, particularly in the U.S.? Could you provide a bit more color on how you see this trending going forward? And second one, what are your thoughts around the Chinese pharma market in 2024? Thanks so much.
I did not get the second one, what is, sorry?
The second one was what are your thoughts on the Chinese pharma market in 2024?
So the first question, we expect the continuation of the price environment that we saw in the last couple of quarters. We are looking at the same environment, meaning that relatively to other areas, it's less than it used to be, with a greater focus on service and sustainability of supply. However, the business model did not change, and in every area where competitors are coming, we see parts of the index remaining in the same neighborhood, like we have discussed in previous quarters. As for China, we do see very good tracking of approvals. We received nine approvals since the beginning of the fiscal year, and three in the last quarter, so for us, the momentum continues in China.
Do you have any more questions from the line of Balaji Prasad?
No, that was it. Thanks so much.
Thank you. The next question is from the line of Kunal Dhamesha from Macquarie. Please go ahead.
Hi, thank you for taking my question and congratulations on the good set of numbers. First, on the U.S. product launch and filing momentum, so if I look at the first nine-month data, we have launched 12 products in the U.S., and we have just done eight new filings, and our total pending ANDAs also have come down from 90 in Q4 FY '22 to now 79. So is it because we are focusing on fewer therapy areas, more complex? If you can provide some color there, it would be helpful.
So yes, we do have fewer filings overall because we have good focus on products that we believe are meaningful. Still, there is a healthy number of filings. I believe that you will see more filings coming in the next few months. On the launch piece, we will have more than 20 this year, so it looks like a healthy number. In the U.S., what is important is not just the number of launches, but the type of product launch, which so far looks healthy for us.
Sure. And then just to follow up on that, I mean, we just acquired MenoLab. If you can provide some clarity as to how this fits into our strategy, what was probably the last 12 months for these brands, and what is the acquisition value that we have paid? And does the increase in borrowing quarter-on-quarter relate to this?
So the start of the time for what we call Horizon-2. We decided to focus on three types of segments: NC and NDE, focusing primarily on collaborations or DD acquisitions, OTC, and pharmaceuticals, and digital therapeutics. Specifically for the U.S., we decided to focus on OTC in several areas including working on digital initiatives and private label, as well as brands in women's health. So we acquired Premama in the past, and now we have the complementary products that our brand gets as it grows. The idea is to create a franchise in women's health supplements, diversifying the U.S. business to areas that have different patterns of demand and supply and brand awareness. I don't recall exactly the sales of MenoLab before, but we are talking about a few million dollars. This is a relatively small group, but we believe that we can scale it from here.
And after this, what would be our U.S. revenue contribution from the wellness product or OTC product? I think earlier we used to provide it in 20F for the quarterly filing, I'm not sure now do we provide that?
So the OTC, if I may, on an annual basis should be about 10%, give or take, of overall OTC.
Sure. Thank you. I have more questions. I'll jump back to you.
Thank you. The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.
Thanks for the opportunity. So firstly on the receivables which have increased quarter-on-quarter, is this on certain select products or is it across the portfolio, and for which markets?
No, the receivables increase is primarily in line with the top line increase. So it's nothing unusual. It's across the markets, but largely concentrated in the U.S. So it's in line with the normal top line increase.
Okay. Secondly, gross margin for PSAI segment has been higher for the quarter compared to the previous quarters. So anything specific you'd like to comment on?
Yes, we are growing. Because of the nature of the business, it typically has a high level of fixed costs. So when sales increase, you normally see better margins. It's just a reflection of the growth. I'm happy that we are back to growth; it took us quite some time to reach that point. Now I believe we are taking two steps in the right direction.
Okay. Because the second-quarter PSAI revenue was INR 960 crores with a 13% gross margin, and now it is INR 1,013 with a gross margin of almost 22%.
Yes, it's a combination again of the mix and the combination of increased sales. There is nothing unusual in that; it's just a natural result of growth.
Okay. And just lastly, considering the launches and the filings and the markets gained for the existing products, could you share the outlook for the U.S. business for FY '25? Could you provide some color on that?
We are not providing guidance, but we expect to continue to see positive performance across all levers. So far, it looks healthy for both commercial products, customer service, and pricing environment. The unemployment is expected to continue to decline, allowing all the levers to work well in the upcoming quarters.
Sure sir. Thank you.
Thank you. The next question is from the line of Neha Manpuria from Bank of America. Please go ahead.
Thank you so much for taking my question. If I were to look at the SG&A spending increase that we have seen in the quarter or even if I were to look at it over a three-year period. I know you've mentioned that we've been investing in Horizon-2 products, a project that you talk about. But from a monetization point of view, when should we start seeing this contributing to revenue? I'm just trying to understand when should we start seeing operating leverage in the higher spend? Do you think this number continues to trend up from where we are?
Yes. Part of it which is related to the investment we are currently making in certain brands in India will yield results already in FY '25. Because we are ready to launch. Part of it is related to investments that will take more time as we put money into products that will be launched in FY '26, '27. So, while the level at least on the value side will likely continue to be higher, I do see more growth in revenue. Overall, it should align with the same environment as it used to be in the past before COVID. So to your question, half of it will show results in FY '25 and the other half in FY '26, and so on.
And if I were to dig a little deeper on the points regarding the launches. I know in your analyst meet you've mentioned certain areas that you're working on. Out of the 25 launches that you mentioned in the U.S., can we try to understand how many of these could be the bread-and-butter launches that we need to offset the business? And how many of these could be meaningful products? Some color there would be helpful.
Yes. We have about 26 products that can be launched with approval. Winning all the approvals in the market that can be launched, and I'm referring to products that can be impactful in terms of revenue. This is the expectation for the second discussion. The question is what combination of those will get to the market and what will the sales be, that's of course uncertain, but we are building on that to offset the period after the new developments. In addition to that, we are planning to see growth in other areas and the potential digital products, so the combination of those factors is expected to lead in a positive direction.
And just to follow up on that, the 26 products would be over the next two to three years; how should I look at the timeline for that?
So potentially, with all the courses regarding this kind of product, I refer to products that are supposed to be launched in the next two years, '25 and '26, with additional products expected in '27. Of course, this is subject to approval and normal market challenges, but let's say it's a healthy list of products.
Understood. And my last question on the biosimilars pipeline. Could we talk about how many products we are developing for the U.S. and European markets? And when should we start expecting some sort of a timeline or a progress update on the pipeline that we're looking at for biosimilars?
Yes. We are talking about six products in total, again, subject to receiving approvals and patent cases. But these are the cases we are aiming for. If you recall at the time when we made arrangements after the change, we decided to move products that we have to transfer across the market, which is part of our strategy. The first product should come in the calendar, early in 2027, and then the rest of the products by FY '30. And of course, we have more products planned for between FY '30 and FY '35. So that's the current timeline we are planning for.
Understood. Thank you so much.
Thank you. The next question is from the line of Damayanti Kerai from HSBC Securities and Capital Markets India Private Limited. Please go ahead.
Hi. Thank you for the opportunity. My first question is for your India business. So you mentioned you're working on some innovative product digital therapeutics, etc., to improve market offerings. But I want to understand how far these opportunities are right now for you? It appears that the uptake of these products might take some time. Meanwhile, your India business is going slowly in the market. How do you bridge your growth versus market growth until the time these innovative products start delivering results?
Sure. First, just to clarify, part of the reason that people see single-digit growth is the brand that we acquired, the anticipated price erosion that occurred, which contributed about 40% to that decline. Additionally, in the base quarter last year, we had a product that was adversely impacted. Therefore, if we take those factors into account, we are already positioned for double-digit growth. Looking ahead, we are identifying brands that we expect to grow even faster than the market. We're speaking about brands that target growth at 1.5 times the market rate. While it will take time for new launches to ramp up, we are confident that all products we are developing will be better than the current standard of care, leading to significant growth in the medium term. In FY '25, I expect to see double-digit growth from the business.
Okay. That's comforting to hear. My second question is on your U.S. business. You've delivered a good set of numbers. Two reasons you mentioned was the pick-up in market share for key products, etc. I just want to understand, was there a contribution for the third quarter that was even much higher than what we saw in the first and second quarters? What kind of a pick-up have you seen in your main portfolio?
Unfortunately, I cannot comment on the quantity regarding REVLIMID. However, I can say that it is absolutely well within our expectations, and I expect it to be meaningful in the future. As for our main portfolio, we do see a pick-up; it is indeed growing. So far, it has met our expectations of growth following that acquisition.
Okay. Thank you. My last question is about your progress on some GLP-1 products specifically for anti-obesity indications, which you might be targeting for the U.S. and other export markets.
We decided, like many others, to focus on this segment, as it's essential for us. It's important for us from both: the first, we are heavily invested in anti-diabetic products, not just in India, but globally. And we are committed to developing our capabilities. The second is in peptides. We believe that it's a core strength for us, from APIs to sterile facilities. That combination makes it beneficial for us to engage in this market and also address essential needs. Thus, we are planning to launch globally in all the countries where regulatory situations allow us to do so.
Okay, Erez. Thank you very much for your answers.
Thank you. The next question is from the line of Surya Patra from Phillip Capital India Private Limited. Go ahead.
Yes. Thanks for this opportunity. My first question is on the U.S. business. In fact, the base U.S. business, excluding REVLIMID and the recently acquired managed portfolio, it looks like we are still facing performance issues despite the improved pricing scenario in the U.S. Could you clarify whether this is the trend we are also experiencing? What kind of growth are we anticipating for the base business moving forward?
I can confirm that the base business is indeed growing. We are steadily looking for our ability to invest in inventories and customer service. I expect this trend to continue in the future. Throughout, geopolitical conditions and concerns regarding the sustainability of supply are significant topics for customers, and we see ourselves as a partner in helping them address these challenges. Whether we seize these opportunities remains to be seen.
Okay. Regarding the recent M&A activities we’ve seen, leveraging cash flow generation from the REVLIMID, we have made several acquisitions and announced a few line-selling arrangements. Cumulatively, have these initiatives contributed to the growth of the base business? Over the next three to four years, what growth are we anticipating from these M&A activities?
I don’t categorize M&A activities as part of the base business by design. Most of these initiatives, including alliances and joint ventures, are primarily aimed at strengthening the future portfolio beyond the initial stages, whether that means base products or mergers. Therefore, the primary focus is on what we call Horizon 2, as mentioned at CMD, focusing on digital therapeutics specifically. While we continuously assess viable opportunities, we are careful and deliberate in our approach. We’re not interested in a shopping spree; we intend to acquire assets that align with our strategic goals.
Regarding the inspection outcomes for the FTO-3 facility, what risk should we assign to it? How do we assess the risk to the existing business given the observations that were issued and their nature?
Yes, you are referring to the FTO-3. Firstly, regarding the risk of receiving an OAI (Official Action Indicated) classification, yes, there is a possibility. However, there is also a possibility that it could not happen. What I can share is that we have addressed all the observations in the stipulated time. Subsequently, we will have a follow-up with the FDA, validated by external consultants, demonstrating that the corrective actions we have put in place are effective. The follow-up will occur in two stages: one at the center and the other in general. I believe our response will be robust, but, of course, we will wait for the FDA's response.
Sure sir. Just one last clarification from my side on the MenoLab's size and potential contribution to our U.S. business?
No, I did not recall the exact numbers. I apologize for that.
And we've not disclosed the number, but as Erez has mentioned, a couple of million is what is there. We’ll keep updating you as the business progresses.
Sure. Yes. Thank you, Ma'am. Thanks a lot for all your responses.
Thank you. The next question is from the line of Bino P from Ilara Capital. Please go ahead.
Hi. Good morning. Good evening. Just a couple of quick questions. One, you have this product Lumify, which you have licensed in the U.S. So is there any timeline we can anticipate regarding the approval of the same?
Which product? Sorry, I missed it.
Generic Lumify.
I don't have any information.
They are in the pipeline, and we will keep updating once their approval is in place.
Okay. Second on the biosimilar RITUXAN, could you give some color on the timeline you have in mind for the launch, given the recent inspection of the USFDA and the outcome, etc.?
So, we submitted it in April. We had the FDA inspection on time in October. We addressed their observations and did not receive any additional information. Therefore, if everything proceeds without a Complete Response Letter (CRL) or any inquiry from the U.S. FDA, the earliest we could receive approval would be at the end of April. However, additional queries could arise.
Understood. Okay. You mentioned about this biosimilar pipeline, which spans from the next few years into the 2030s. Do you have products that you are targeting for first-wave launches?
This is indeed our intent. All the products we are developing aim to be among the first or in the first wave.
Thank you. The next question is from the line of Shyam Srinivasan from Goldman Sachs. Please go ahead.
Yes, thank you. Good evening. Thank you for taking the question. The first one is on the overall CDMO kind of space. I know you have a subsidiary, but I want to understand if you are seeing more demand coming from global innovators towards in-depth companies, including yours or your subsidiary. That's the first question. Are you investing in capacities either on the small molecule side or the biologic side for manufacturing for CDMO?
Yes, we are investing in capacity on both fronts. However, I want to caveat that our CDMO business is not very large yet, although it's on an overall upward trend. We have been investing in capacity, both in laboratory settings and for production, under contracts where we know the capacity will drive success.
So then, from a capital allocation standpoint, will this be significant for you? Or do you think there are enough other projects in the pipeline for you to manage this? Or do you think this will remain a small part and may not ramp up significantly?
With CDMO, it is not the overall scheme of things for our company. We do see potential for the business to grow from tens of millions to hundreds of millions of dollars. But in the big picture, it remains relatively small.
Got it. Helpful. The second question is for Parag. I'm reviewing your disclosures around net cash generated after taxes. The conversion has been low. I know there has been an acquisition cost in the previous quarter, but I’d like to understand further. Is there something else we should keep in mind regarding CapEx or intangible build-out?
The only key point I'd highlight is what was mentioned: we are investing in strategic inventory build-up. This includes ramping up inventories for new product pipelines due to disrupted supply chains. We want to avoid losing sales. So, the primary impact comes from working capital increases along with the normal sales levels. Overall cash flows continue to be healthy and conversion remains in a good range.
Got it, Parag. Thank you, and all the best.
Thank you. The next follow-up question is from Kunal Dhamesha from Macquarie. Please go ahead.
Thank you for the opportunity again. Just continuing on the last question about the inventory build-up: how much of our product would be going through sea routes now? Is there anything going through red sea routes as of now?
The majority of our products are transported via sea routes. Interestingly, the current situation allows for opportunities to transport certain items more effectively by air. However, this is a volatile situation and may change. Overall, we aim for over 80% to go through traditional methods. Additionally, we are trying to ensure that we have ample inventory close to our U.S. customers to bolster our service capabilities, which we believe gives us an advantage.
Sure. Just one related question: over the last three to four quarters, how have one-time or short-term supply opportunities behaved for you? Are those supply opportunities increasing or decreasing in the last three to four quarters?
I would say that the one-time situations are not significant, and there are no tangible trends in that regard. Our focus is more on long-term opportunities. For us, gaining share is aimed at sustainable, long-term growth.
So, is it fair to say that now the agreements being made are for a bit longer duration compared to what we used to see two years back?
Every customer has its own procurement pattern, so I don't want to delve too much into specifics. But overall, we do value the relationships and strive to present ourselves as a trustworthy partner for our customers.
Sure. And one on the India business; we stated that we want to focus on our key brands that we have identified in India where we aim to grow at 1.5 times the market rate. Could you provide a rough estimate as to how much of these key brands will contribute to our India business?
Most of the contributions to the overall competition will come from those targeted brands. As they grow at the pace you've mentioned, we anticipate overall growth in our India business as well at a double-digit rate.
Sure. The last one, regarding GLP-1 opportunities, could you provide insight into our product manufacturing capacity? Are we currently producing anything for regulated or semi-regulated markets?
We are focusing on GLP-1 as well as other peptide products. While considerable volume is yet to be launched because products remain under patent or the approval process with ourselves or partners, I can confirm that we are investing in capacity.
Sure, but any specific figures regarding capacity? Some global players have mentioned their ability to manufacture on a certain scale. Are we targeting similar volumes?
We have made significant investments in both API and finished product capacity. However, I will refrain from disclosing specific numbers for competitive reasons.
Sure. Thank you and all the best.
Thank you. The next follow-up question is from the line of Neha Manpuria from Bank of America. Please go ahead.
Yes, thanks again for taking my question. Just to confirm, out of the 26 products that you mentioned in the U.S. pipeline, none of these would be from Bachupally. Would that be a fair assumption?
From FTO-3, I believe we do have two products that are part of that. Should any issues arise, we will have to move our production to another site.
Okay. From a pipeline dependence perspective, how vital would FTO-3 be concerning upcoming launches? Just trying to understand the risk if any adverse outcomes occur.
It holds no significant weight. Most of our products are being commercially sold. Naturally, we prefer to avoid any inspection issues as it can impact our reputation. However, it does not pose a major risk to our growth as the majority of our business is secured outside of that facility.
Got it. And Parag, on the moderation in the growth margins that we have seen in the generics business, how much of that would you attribute to pricing pressure? Or are there other major factors? I assume FX could be another significant variable.
It's more of a mixed issue, Neha. Pricing remains stable, so it doesn't stand out. The offset from new product launches and the product mix has been slightly lower than expected; hence, we experienced a moderation. The pricing erosion remains consistent, while the productivity and product mix did not contribute as much as in previous quarters, leading to a slight adjustment.
So, I don't need to presume that the incremental business we've seen in the U.S. is from a lower-margin product, and that's reflective of the gross margin, correct?
That's accurate. You should not make that assumption.
Okay, thank you so much. Thank you.
Thank you, ladies and gentlemen, that was our last question for today. As there are no further questions, I would now like to hand the conference over to Mr. Richa Periwal for closing comments.
Thank you all for joining us for today's evening call. In case of any further queries, please get in touch with the investor relations team. Thank you once again on behalf of Dr. Reddy’s Laboratories Ltd. That concludes this conference. You may now disconnect your lines. Thank you.