Dr. Reddy's Laboratories Limited ($500124)

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] 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 priority 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 '26. FY '26 reflected a resilient operating performance, delivering highest-ever annual revenues with 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 self-stock adjustment or SSA related to [indiscernible] 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 subsidies included in SG&A expenses, impairment of INR 135 crores, including 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 tax liability of INR 70 crores as well as the impact of new labor [indiscernible] 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 their revenues before the impact of SSA unless otherwise stated. For the reported figures, please refer 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 [indiscernible] sales, while the base business excluding [indiscernible] 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 650 basis points on sequentially and at 53.5% for the year lower by [ 498 ] basis points on year-over-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 that PSA stood at 19.9% for the quarter and 17.2% for the PSA 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 potions mentioned earlier, SG&A spend were at INR [ 2,682 ] crores for the quarter, an increase of 11% on year-over-year and 1% sequentially and 33% of the adjusted revenue grades and INR 10,435 crores for the year, an increase of 11% 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 [indiscernible] Healthcare business and branded generics. We expect the spend to be around the same level as FY '26 for the years 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 [indiscernible] of adjusted revenue. For the year, the spend, excluding onetime labor core-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 [indiscernible] has been completed. We expect the spend to be in the range of 7% to 8% in the fiscal head. Other operating income for the quarter was INR 345 crores, as against INR 247 crores in the corresponding quarter last year and INR 2,763 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-offs was at INR 8,419 crores, which is $897 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 [indiscernible] assets and partner product FT Alpha 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's performance, the Board recommended payment of dividend, INR 8 per equity share of face value of INR 1 each. This is equal to 800% of the face value for the year ended March 31, 2026, subject to approval of the shareholder of the company. Diluted EPS for the quarter INR 2.64 and INR 51.4 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 31 million over 31st December 20255. CapEx cash outflow for the quarter stood at INR 430 crores, which is [indiscernible] and INR 2,302 crores, which is USD 245 million for free cash flow generated during the quarter before acquisition related payout INR 600 crores, which is [indiscernible] 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 [indiscernible] hedged using a combination of forwards and risk reversal options scheduled to mature by [indiscernible]. These contracts are hedged at a rate of [indiscernible] hedge at a FX rate of [ RUB 1.12 ] 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 on strategy of strengthening the base business while investing in our future growth drivers [indiscernible] by similar 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 abatacept and targeted business development efforts to support our growth ambitions while continuing to enhance efficiency across operations. I'm pleased to report that the first quarter in this first quarter without one of our key products, [indiscernible] -- the company delivered an EBITDA margin of around 20% after adjusting for certain items indicated by MVM earlier. Launches of products offering meaningful opportunity [indiscernible] and continued cost optimization efforts will take us closer to our aspiration of 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. Our geography beside North America recorded double-digit growth. While performance in North America was impacted due to linaclotide sales and onetime share stock adjustment related to this product. Let me now walk you through some of the key highlights of the quarter. In light of our strategic priorities, we made progress on our key pipeline assets in [indiscernible] 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 [indiscernible] 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 [indiscernible] in Brazil to address its concern related to our generics semaglutide filing, and remain committed to making this important therapy available to patients across several markets, subject to approvals. Further, in February 2026, [indiscernible] have accepted for review our BLA for the intravenous IV presentation of abatacept biosimilar candidate following its filing in December 2025. In line with our strategic focus, to bring innovation to patients in India with already in hormone replacement therapy segment and with the acquisition of [indiscernible] in India. Our partner product, [indiscernible] 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. provide the VAI classification for our formulation facility [indiscernible] Srikakulam, Andra Pradesh following a GMP and pre-approval inspection, PI 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 [indiscernible] 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 pharmaceutical industry of '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 the respective local currencies. Our North America Generics business reported revenue of $199 million for the quarter and $1.3 billion for FY '26. Excluding one-time 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 the [indiscernible]. During the quarter, we added 7 new products of 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 [indiscernible] 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 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 [indiscernible] revenues were at INR 6,219 crores [indiscernible] growth of 16%. This performance was largely driven by revenues from our innovation franchise, new brand launches, price increase and volume growth. [indiscernible] 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 of 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 [ EUR 542 million ] for FY '26, reflecting an acquisition-led growth of 37% year-over-year. The decline this quarter was primarily on account of [indiscernible] generics. During the quarter, we launched 7 new generic products across markets, 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 uptick during the quarter. During the quarter, we filed 48 [indiscernible] 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 liable, underpinning this strategy, the future had the 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 program such as semaglutide [indiscernible], drive operational efficiency and pursue value-accretive inorganic opportunity that supports 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 short stock adjustment that we had in the quarter, a $50 million number for a product like Revlimid, where we knew that the patent class coming seems very large. So if you could just give us some color in terms of why the sale stock adjustment was so large, given that we knew we're expecting competition in Jan?

We were also surprised by this. 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. I guess in your view, what could be the competitive landscape now that these and the second play of cotton approval? When do you expect more players? And out of the $12 million, based on your assessment, what could be the rough breakup between, let's say, Canada and U.S.?

So I believe that -- so the current landscape of basically [indiscernible] as well as the 2 of us will stay probably for several months and then likely that others will come. I believe that the market in Canada is give or tech. It's about 1/3 for what we call [indiscernible] cash and one said on what they call private. So it's a kind of public private cash. So what I believe will happen is that the reimburse price will go over time as expected. The launch quantities at least in a couple of years, we should be very, very [indiscernible] to price when 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 sales for sema in fiscal '27? Or do you think that would depend on us getting approval in Brazil as well?

So Brazil will be a part of it. I believe, is 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 summer 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 -- 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. It is -- so 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 will 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 [indiscernible] will be give or take about half of what Novo Nordics will be. So that can be shared because it will be listed. Obviously, the rest is the arrangement that we have with the customer that 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 markets where do you -- where 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, 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 it 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 a 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 where surprises 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 mode. 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 we'll have more. But just to address, the NRT is a place in which we will have more. At the same time, the growth will well more than finance it. So the level of profitability of the asset will stay the same and even maybe low. But in terms of SG&A percent, 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, our sales will go back 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?

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

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

Sir, firstly, on gross margins, even after adjusting the shell stock, for the quarter 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 missed as far as gross margin for the fourth quarter is concerned?

So this quarter, 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, 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, sema -- including semaglutide plus product mix. Considering all these things. I think certainly, our gross margin will be 50% or above.

I want to make sure -- and that we are planning to launch also products like [indiscernible], sitagliptin [indiscernible] for my reading. And sorry? 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 [indiscernible] 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 including the [indiscernible] so effectively, maybe $944 million, if I normalize that. So will we sort of grow over and above this [indiscernible] In FY '27?

We will absolutely grow in North America, [indiscernible] 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. [indiscernible] inorganic. We did not licensing and consider organic...

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

No, 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, 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 [indiscernible]?

So denosumab, we launched in Europe, and we are waiting for approval in the United States. Our partner has a efficiency letter that it address for the United States. Abatacept, the IB is -- was approved for review. So it was accepted. And so it's going after the time lines. I know we are also awaiting an FDA inspection in Bachupally, Hyderabad for the same. So the abatacept is 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 IP 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 [indiscernible] approval.

Got it. Second on -- you said that you have wind down your CAR-T-related diminishment and have taken a write-down. Can 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 [indiscernible] . 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 impaired as appropriate accounting. But this is give or take, what we invested.

Sorry, I got the figures, but my question was more technical deal. 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.

The products, okay. So your product doesn't work with CAR-T technology as such...

I don't know what is [indiscernible] the product is the CAR-T, sorry.

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 of closure of [indiscernible] in 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 a [indiscernible] it. 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 these sales, certainly, whatever investments we are doing for the development of our asset, other products, pembro also, we are with [indiscernible]. So definitely, it's not a breakeven. Once, we launched abatacept, certainly, I think post that, then suddenly, we can see the breakeven.

FY '29?

It is in suddenly would be, like Erez said, if abatacept everything goes well, our inspection and everything, and we'll be launching in calendar year 2027, that would be like FY '28.

Okay. Okay. Second question was on the NRT, 2 things here, observation wise. So last 2 quarters, since last 2 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 a sustainable one. And secondly, fourth quarter, is there any seasonality because last year also, there was a kind of sequential decline that we have 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. It is certainly more than that. Specifically for the 16%, so there is some impact of the fact that in the transition, some customers take most. 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 low double digit. We will be somewhere in this neighborhood.

Okay. Just last one point, just 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 I think our market share is about 10%, more than 10% on a stand-alone basis.

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 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. sales sequential decline of 25% Q-o-Q despite having limited revenue in Q3 seems quite high. So am I missing something? Is there anything other, which is one-off here?

So in Q3, we had a little bit sales ride. There's a little wet sales, yes. Hence, definitely from Q3 to Q4, there will be a natural decline.

So I don't say-- 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 by buying patterns, but 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 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 the part -- as part of the 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, so this is from the existing products and then going from a [indiscernible] we'll be launching like 27 new launches 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 a progress 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 loan product that is there. And in the parlor to that, of course, we are seeing approval for our initial submissions. So -- and we will be in Brazil, probably, I don't know, it will be 3 months delay or 4 months delay, but that's still the expectations. In addition to that, we 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 Latin America or in Southeast of Asia because altogether, we are planning in this calendar to launch in more than [indiscernible] 12 months in more than 18%. 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 ] 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 1 month. So we are still in the same neighborhood, but with the delay of the few months that took those approvals.

Understood. And just 1 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 nice products. And I agree with you about that most of them will be competitive, I fully agree with that. The -- but overall, it should give us a double-digit growth without [indiscernible].

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.

So 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 partner [indiscernible] help us understand.

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

I understood, sir. And 1 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 predevelopment levels, right? So in the last 3 years, we have launched many products, but the U.S. revenues haven't moved up much. 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 predevelopment levels? Or is it [indiscernible] similar?

Yes. So first, obviously, there was 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 and not flat, but I'm in agreement with you that that's -- 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 Lina, 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 [indiscernible]. So over time in the business, we will diversify itself. But right now, it's mostly generic products.

Understood, Erez. 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. So what kind of the growth you are expecting in the U.S. business at line this year?

Yes. So it's [indiscernible]. It's not with ex-sema. Sema is on top.

The next question is from the line of [indiscernible]

I had 2 questions. Number one, sir, when you look at the next year, I think you have given the breakup of the cost by line items. But given that the base business right now is, 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 [indiscernible] 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, we see it should be closer to the 25%, but maybe a bit less. It depends on how much sema we will say.

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

In 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 or capacity of [indiscernible]. 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 that.

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

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

Sorry, can you repeat?

Yes. 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 units personally. I don't have a knowledge for that. But we are [indiscernible] 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 innovative 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 we are likely that this will happen to the public eventually. But I do see it as a mix of markets. 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...

[indiscernible] broad guidance?

Broad. Hopefully, it will be in the range of [indiscernible], 600 million, 700 million. Sorry, that -- but it very much depends, of course, of how abatacept will perform will be the lion's share of those sales.

And would this have margins above company margins? Like can this be 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 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 [indiscernible] U.S. but whereas in Europe, IV is very less, and [indiscernible] is high.

Got it. Got it. And your CapEx plans for the next 2 years annual CapEx spend?

So next year would be in the range of INR 2,000 crores -- around INR 2000 crores.

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

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

So in the interest of time, we'll take 1 last question from from [indiscernible].

On biosimilars, you had mentioned that your R&D spend will reduce given that the spend toward 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 launches post abatacept and denesumab 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?

Sure. So on the R&D, naturally, abatacept, we paid for a Phase II 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 unless that something that will come in house. So -- and obviously, then we share the R&D cost as part of that. And number three, we are becoming more productive. One, they will discuss it, but will have AI and we'll have this kind of stuff. And 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 or offshore in India, but also in other places. Depends, of course, on how people appreciate the compliance of the over products. So and as time will go by, also, the over will have probably additional -- because that's what the innovator is doing, additional phones, 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 places that in the emerging market, you have countries in which there is a full use of the pens and innovator fully launched a product in 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 in the lucrative markets, at least the way we look at it now.

Thanks for that. 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 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.