Dr. Reddy's Laboratories Q3 FY26 Earnings Call - Resilient Growth Amid Lenalidomide Decline and Strategic Pipeline Advances

Aishwarya Sitharam, Head of Investor Relations, Dr. Reddy’s Laboratories: Good day, everyone, and welcome to the Quarter 3 FY26 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. All participants will be in the listen-only mode during the opening remarks. Should you need any technical assistance during the call, please use the chat function on your Zoom application. The chat will not be monitored for any questions to the management. This session is being recorded, and both the audio and transcript will be made available on our website. Please note that this call is the proprietary material of Dr. Reddy’s Laboratories Limited and may not be rebroadcasted or quoted in any media or public forum without prior written permission from the company.

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

M V Narasimham (MVN), Chief Financial Officer, Dr. Reddy’s Laboratories: Thank you, Aishwarya. A warm welcome to all. Thank you for joining us on our Q3 FY26 earnings call. It is my pleasure to take you through our financial performance for the quarter. The business delivered a resilient performance in Q3 FY26, 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 employee benefit obligations under the new labor codes in India. Adjusting for this one-time provision, the EBITDA margin was 24.8%. All financial figures in this section are translated into US dollars using convenience translation rate of ₹89.84, the exchange rate prevailing as of December 31, 2025.

Consolidated revenues for the quarter stood at ₹8,727 crores, which is $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 healthcare 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 US and Europe generics. Consolidated gross profit margin for the quarter was at 53.6%, a decrease of 505 basis points on 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 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 ₹ 2,692 crore, which is $300 million, an increase of 12% year-over-year and 2% on QOQ. The year-over-year increase was primarily on account of ongoing targeted investment to support long-term growth of our branded franchises, namely the acquired NRT consumer healthcare business and branded generics, adverse forex impact, as well as the one-time provision related to the new labor codes. SG&A spends accounted for around 31% of the revenue during the quarter, was higher by 199 basis points year-over-year and 82 basis points on a sequential basis. Excluding the one-off provision, SG&A spends as a percentage to the revenue was around 30% in Q3 FY26.

The R&D spend for the quarter was INR 615 crores, which is $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 investment related to Abatacept has been completed. The spend this quarter also included one-time new labor law costs related to provision. The R&D spend was 7% of revenues for Q3 FY26, lower by 92 basis points 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 77 crores, as against 44 crores in the corresponding quarter last year. EBITDA for the quarter, including other income, stood at INR 2,049 crores, which is $228 million, a decline of 11% on year over year basis and 13% sequentially.

The EBITDA margin stood at 23.5, lower by 401 basis points on year over year and 322 basis points on QOQ. Adjusting for one-time new labor law costs related to provision, the underlying EBITDA margin was at 24.8%. The net finance income for the quarter was higher at ₹117 crores as compared to net finance expenses of ₹2 crores during the same quarter last year. The increased net finance was primarily on account of higher foreign exchange gain this quarter in comparison to foreign exchange loss reported in the corresponding quarter last year. As a result, profit before tax for the quarter stood at ₹1,543 crores, that is $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 FY26 was lower primarily due to favorable jurisdictional mix for the quarter in comparison to the same period in the previous year. Profit after tax attributable to equity holders of the parent for the quarter stood at ₹1,210 crores, which is $135 million US dollars, a decline of 14% year over year and 16% on QOQ. This is at 13.9% of revenue before adjusting the one-off provision related to new labor codes. Diluted EPS for the quarter is ₹14.52. Operating working capital as of 31st December 2025 was ₹14,142 crores, which is $1.57 billion, an increase of ₹811 crores, which is $90 million over 30th September 2025. Capex cash outflow for the quarter stood at ₹669 crores, which is $75 million.

Free cash flow generated during the quarter was ₹374 crores, which is $42 million. As of December 31, 2025, we have a net cash surplus of ₹3,069 crores, which is equivalent to $342 million. Foreign currency cash flow hedges executed through derivative investment during the period are as follows: $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 89.1 to 90.3 per US dollar. RUB 2.93 billion hedged at a fixed rate of 1.06 per Russian ruble, with a maturity falling within the next three months. With this, I now request Erez to take us through the key business highlights.

Erez Israeli, Chief Executive Officer, Dr. Reddy’s Laboratories: 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 FY26 remained 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, Magnota and Abatacept, as well as pursuing selective business development with the 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%. This is adjusted for 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 contributions from Linnam Video. Our base business, excluding Linnam Video, 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, EBITDA margin is at 24.8%, like I mentioned, about 25%. Annualized ROC 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 Alpha, 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 a vaccine, 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 subject expert committee in the SEC under the Central Drugs 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 non-compliance from Health Canada for our Semaglutide injection, which outlined a request for additional information and clarification on the specific aspect of the submission. We promptly submitted our response by mid-November 2025, well within the stipulated time, and now we are awaiting a response from the regulatory agency in Canada.

On the biologics front, we have completed the filing of the biologics license application, BLA, for the IV presentation of Abatacept biosimilar candidate in December 2025, as per the schedule. Following the positive opinion for CHMP, we received a European Commission approval for the Ustekinumab biosimilar in Q3 FY26. 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 U.S. FDA for the Ustekinumab biosimilar BLA, which was developed by our partner, Alvotech. The CRL refers to the observation from a pre-license inspection of Alvotech Reykjavik manufacturing facility. On the regulatory front, in November 2025, the U.S. FDA concluded a GMP inspection of our API facility, CTO SEZ, in Srikakulam, Andhra Pradesh, with zero observations.

In December 2025, the US FDA completed a GMP and a pre-approval inspection of our facility, FTO ACZ PE1 in Srikakulam, Andhra Pradesh, and issued a Form 483 with five observations. We have responded already to the agency within the stipulated times. Recently, the US FDA issued a post-application action letter in relation to the response to the observations received post the PAI 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 US FDA in 2025. Further, APSL delivered three discovery programs through its in-house AI-assisted discovery platform called Aurigene.AI. We continue 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 FY24. We are in the leadership position in CDP water security and climate change categories for 2025. Let me take you through the key business highlights for the quarter. Please note that all financial figures mentioned are reported in their respective local currencies. Our North America generic 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 lower lenalidomide sales and price erosion in certain key products. During the quarter, we continued the launch momentum, adding six new products to our portfolio. Our European generic business reported revenue of $140 million for the quarter, growth of 4% on 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 in Europe. Our emerging market business delivered revenue of ₹1,896 crores in Q3 FY26, 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 FY26, delivering a healthy double-digit year-on-year growth of 19% and 2% increase sequentially. This performance was attributable to revenues from our innovation franchise, new brand launches, price increases, and higher volumes, as well as contributions from the recently acquired Stugeron portfolio. According to IQVIA, we continue to outperform the Indian pharmaceutical market, IPM, with a moving quarterly total months quarterly MQT growth of 12.3% compared to the IPM growth of 11.8%, and moving annual total MAT growth of 9.7% compared to IPM of 8.9% growth. Our IPM rank is 10 for the quarter and 9 for the month of December 2025. During the quarter, we launched two new brands as we continue to enhance our domestic market presence.

Our PSA business reported revenue of $92 million in Q3 FY26, 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 in-house 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 base business growth, advancing differentiated pipeline products like Semaglutide and Abatacept, driving operational efficiencies, and pursuing value-accretive acquisition and partnership aimed at creating long-term value for our stakeholders.

Before we move to the Q&A session, I would like to announce that Aishwarya Sitharam has recently taken over as the head of Investor Relations from Richa Periwal. I wish both Aishwarya and Richa, who are staying with our organization, success in their respective newly promoted roles. With that, I welcome your thoughts and questions as we move into the Q&A session. Thank you very much, Erez. We will now begin the question and answer session. To join the question queue, please use the raise hand option available on the bar at the bottom of your Zoom application. If you wish to exit the question queue, you may click on the lower hand option. Participants are requested to not ask more than two questions at a time and to rejoin the queue in case of any incremental queries.

I would like to reiterate that the chat will not be monitored for any questions to the management. However, in case of any technical concerns, please do feel free to reach out to us through the chat option. The first question is from the line of Neha Manpuria from Bank of America. Neha, please go ahead. Yeah, thanks, Aishwarya. Two questions from me. First, on the India business growth, the 19% growth, how should I think about, you know, 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 70 and 80%.

If I calculate, I’m not sure exactly where it is, but let’s say it’s more than 17% organic without acquisitions. That’s right, Erez. And what is driving this strong growth, Erez? Because, you know, we’ve been doing, I know we’ve been moving in the double-digit, you know, category for a few quarters now, but the step up to 17%-18% does seem very large for in a quarter’s time. What’s changed in this quarter and how sustainable is this growth trajectory, you know, particularly this, you know, let’s say, mid-teens sort of growth trajectory as we look through the next few quarters? So it’s primarily the performance of the innovative product. So normally, and there are actually very good products that are being really appreciated by the market.

So normally, when you produce a brand that is not known, there is a period of time in which you have a cycle of physicians that recognize this product and then recommend it. So there is a certain growth pattern, like introduction of any brand. And I think what happens to us, it’s actually the strategy is working. We are in some of these brands in the third year since launch, in some of them in the second year. And we start to see the move of that. So in addition to that, the brand has generally performed in a similar manner, meaning that we are increasing the prices, we have the support of those, but it’s primarily what we called at the time Horizon 2, introducing of innovation to India. This is the primary move that is actually working. Understood. Sorry, one last question on India.

The innovative portfolio would be what portion of our sales roughly today, you know, if you were to quantify it? Any idea, guys? About 15%-20%. No, it should be less. It should be less. If I need to, it’s somewhere between 10%-15%, but I’m not sure, Neha. Yeah. All right, no problem. And my second question is on SEMA. I think you mentioned that we have submitted the response and we are awaiting, you know, sorry, we are awaiting response from the agency. So have we not got a follow-up goal date as well? And, you know, according to you, what would be the next timeline that we should look at for SEMA approval in Canada? Yeah, so we do have a goal date because it’s come automatically six months from the response time. So it takes us to May.

But it doesn’t mean that we need to get approval by that date. It can be anytime between now and May, and hopefully in May. No additional question. So I don’t know when we will get the response. We are preparing for a launch even in Q4. And there are scenarios like that. And if not, it will be in Q1. But let’s say anytime between end of February to May, we should expect a launch in Canada. Thank you so much, Erez. Thanks, Neha. The next question is from the line of Damayanti Kerai from HSBC. Damayanti, please go ahead. Yeah, hi. Thank you. Thank you for the opportunity. My question is again on India business. So you mentioned the innovation, innovative products, etc., is helping you to achieve such strong numbers. So two things.

Again, I think what is the sustainability of these numbers in growth numbers in India? And also, if you can clarify if the December quarter has some spillover benefit from the prior quarter where we had seen the GST disruption. So it’s absolutely sustainable. I don’t know if it’s 90%, it could be also 15%. So it’s absolutely sustainable in this range. And I don’t think that we had a major. No. There’s spillover. There’s no spillover like on account of GST implementation. This is a clear quarter. Got it. Thank you. My second question on Semaglutide. Again, I guess we are waiting 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? My expectations did not change much from our recent discussions. We know that eventually there will be a competition in Canada. We also know that Novo Nordisk announced that they want also to participate. And they even started to offer certain organizations in Canada their, what they call, their own generic brands, if you wish, that in Canada as well. We made some arrangements like that. I still believe that if we will get the approval, we have a good chance to be alone or even with the low level of numbers of players that will compete. And over time, they will accumulate. The opportunity, to my opinion, is still there. Sure.

Earlier, I guess your expectation for pricing across different markets was somewhere, say, $20-$70 per unit. So are you still expecting the similar range in terms of pricing in different markets? Yeah, yeah. Most of the markets will be on the lower end of the spectrum. But yes, the spectrum is still there. We did not get yet indications that it will be lower. Over time, when people will get approval, we are expecting to be very competitive markets. There will be a short period of time that can be from weeks to months. It depends on the market in which we can have healthier prices. But then we are preparing ourselves for a scenario of very competitive markets. Somewhere closer to the lower end of the range, right? That’s the expectation. Yes, yes, yes, yes. I think this is a fair assumption for your analysis.

Okay, thank you. I’ll get back in the queue. Thanks, Damayanti. The next question is from the line of Bino Pathiparampil from Elara Capital. Bino, please go ahead. Hi, good evening. A couple of questions. One, how much has lenalidomide still contributed to the EBITDA margins in the quarter? And now that we have a visibility of our expense levels, etc., what shall we look forward to in terms of EBITDA margins in Q4 and FY27? You know, four years, I did not answer this question. And this is the last quarter that I need to answer this question. So I will not be able to tell you the amount. And this is because of the confidentiality agreement that we have with the innovator. It’s not because I don’t want. But what we can say is that the decline that you see in America is primarily lenalidomide.

Actually, without Lenalidomide, we even grew. So you can take it from there. Got it. When you say decline in the U.S., it’s YOY or QOQ? Both. Both. Thank you. And second, can I also understand the timelines now, latest timelines for Denosumab and Rituximab in the U.S.? Yeah, so Denosumab, Alvotech needs to answer the deficiency letter. And then, of course, it depends on how the U.S. FDA will address the response. So the answer is I don’t know. But it is likely that will be in the second quarter of, and maybe even after, of FY27. So I’m not expecting it. You know, the normal time that they’re evaluating the deficiency letter and new goal date, likely that it will take us to this time frame. But I really don’t know because it’s, you know, in biologics, you don’t always end up with one deficiency letter.

We need to see. That’s my call. No, you asked about the answer on Denosumab. On Rituximab, no, you asked for both. I think you asked for both unless I... Yes, yes, correct. On Rituximab, we have one out of the two comments that they gave, which is a repeat of our response. It is primarily related to one of the lines of the fill-finish. And on that, we will answer in the next two weeks, give or take. And then the expectation that they will come to visit us again and re-inspect us. The approval likely, it’s not official, but I’ll give you my best assessment that likely that will get re-inspection on that specific line. And I’m already preempting one of the next questions. There is no impact on Abatacept because Abatacept is not on the same lines. But this is the status of Rituximab.

So right now, it will be response. Then they will decide when they want to come to visit. And it will come for there. So unlikely, let’s say, in the next six months and maybe more than that. Understood. Thank you. I’ll join back. Thank you. Thank you, Bino. The next question is from the line of Abdul Qadir Puranwala from ICICI Securities. Abdul, please go ahead. Yeah, hi. Thank you for the opportunity. So just, you know, firstly on Semaglutide. So I heard your comments about, you know, Canada entry in February to May, where you expect. I mean, how about the other countries in which, you know, the patent expires in March, including India? And in terms of, you know, we previously talked about having a capacity of 12 million cartridges. So, I mean, is there any increase to that?

By when, you know, we should see a meaningful traction coming from this product? So the starting point is India. We will launch on time. The date is March 21st. It happened to be my birthday for everybody. So this is one. Canada, like I mentioned, it can be anytime from now until the golden end of May. That’s what I answered, Neha. I don’t know exactly in what that spectrum when exactly it’s going to be. But the expectation is that we have an approval product and we will launch at this time frame. In addition to that, we are using our COPP that we got already from India to register in other markets. Altogether, like I mentioned in the past, it’s much more than 80 markets. I think it’s 87 or 80-something markets altogether.

But the most meaningful will be Brazil somewhere around July, as well as Turkey, give or take the same time frame. In addition to that, we have partners both in India as well as outside of India that want the right for our Semaglutide for their market. And we are obtaining also a licensing fee for these kinds of activities, not just for this product, but also for other products. So that’s overall. So the 12 million pence remains the same for that period of time. For the period after, we can have more than that. Right now, as you know, we are using primarily the fill-finish from Stellis. But as time will go by, we have additional capacity and we’ll continue to use our partner as well as our own internal facilities. Sure. Got it. Thanks for that.

And just to, you know, follow up on the biosimilars as well. So with the, you know, we are having now CRL for Denosumab and Rituximab. So internally, you know, how is that impacting our estimates for your entire biosimilar timelines, launch timelines? And secondly, you know, with Abatacept, you know, is there any timeline for launch we are planning internally? Sure. So on Rituximab, the main launch delay of the launch is to our partner Fresenius. As you recall, Rituximab was a product we primarily used to qualify Bachupally. And it’s actually served the purpose well. Maybe even too much engagement with the authorities. It’s actually served the purpose really, really well in that respect. So the launch overall delay in the launch versus the original plan is probably a year plus. In Europe, we already launched. So Europe is good and we are progressing there.

Denosumab, the same. We launch in Europe and we are going to launch in additional markets. It’s a very competitive market over there. Denosumab right now, because of the CRL, I don’t know exactly when it will answer. So I don’t know how is the delay, but it is at least six months, if not more than that, for this particular product. I don’t see an impact of Abatacept. Denosumab is made by a partner, Alvotech in Reykjavik, Iceland. Abatacept makes on different lines in Bachupally in India. Obviously, we need to get approval for Abatacept in the stipulated time. We submitted it on time. So the first expectation is that we’ll get somewhere toward the end of the calendar of 2026 the approval for the IV product, and then we can launch it. The approval for the sub-Q should be by January or February of 2028.

We believe that we are still on time for that. Of course, we need to see that we are actually making it happen. But Abatacept so far looks in the right direction, especially in the United States. Go ahead. Next. All right. Thanks, Abdul. The next question is from the line of Kunal Damesha from Macquarie. Kunal, please go ahead. Can you hear me? Yes. Now we can. Thank you for the opportunity. 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 partner’s side? So no inspections are expected or needed. We just hope for approval. Sure. Of course, Kunal, they can give us additional queries like a normal regulatory process. But we are expecting approval.

But normal regulatory process does not involve plant inspection from Health Canada, like the U.S. FDA has? No, no, no, no inspection. No inspection. Sure, sure. And secondly, you know, I think in one of the media articles, the Health Canada spokesperson has kind of mentioned that the manufacturing of the API is different between generic players as well as the versus the innovator. And hence, you know, substitutable status, whether the generics would be substitutable is kind of questionable. So if you could provide any color on this, you know, how much confident we are that our generic would be substitutable at the pharmacy level? No, it’s absolutely substitutable. And by the way, what he said is not correct. It’s actually also the innovator is using synthetic API for the injectables and the recombinant product for the oral. And we are planning to do the same for the generics.

So in that respect, I don’t see merit to that statement. I believe the product is absolutely going to be substitutable. So there is no need for prescription or special precision or branding or any branded generic activity. It’s a normal retail product once we get approval. Sure. Thanks for that. And my second question is on the new labor code-related provision that we have basically provided some INR 117 crore. So how should we think of this? Is it some bit of retrospective cost also baked into this 117, or it’s just, you know, 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? So Kunal, as per the new labor law codes now, the wage definition has been revised in line with the new labor law codes.

It’s like whoever employs on the payroll of the company as of December 31st, we are recomputed retrospectively. It is not like a prospective. So that’s where this entire gratuity, leave, and encashment provision has been made. And the going forward in line with this may not be this extent. That would be like, in my view, less than, I think, 50 basis points would be the impact, but that’s not very significant. Sure. Thank you and all the best. Thanks, Kunal. The next question is from the line of Madhav Marda from Fidelity International. Madhav, please go ahead. Hi. 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. Thank you.

That’s my first question. So yeah, sure. So yeah, Europe is a very important market for Abatacept. We are going to do it by ourselves as well as with partners. And we did to cover all the markets because in some of the markets, we don’t have the ability to go to physicians. And so we are trying to cover as much as possible. Obviously, the markets that are tender markets, we can cover easily by ourselves. Likely that the launch is July. July. We are submitting July 2026 and expecting approval by 12 months. Yeah. So July 2027, you should expect a launch in Europe. For both IV and SC. For both IV and the sub-Q. 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 in Abatacept, it seems like, you know, we are the only ones who’ve completed phase three. Maybe one more person is starting it off. I don’t know where they are right now, but even in Europe, similar competitive landscape, like we’ll probably be the first and only company at launch. Yes. Yes. And by the way, the idea is to launch Abatacept in every country that has a demand for this product, either by ourselves or with a partner. So we are planning to launch at this time frame in Europe, in the United States, in Japan, in Canada, and every market that there is a demand for this product. Understood. Great. Thank you so much. Thanks, Madhav. The next question is from the line of Shyam Srinivasan from Goldman Sachs. Shyam, please go ahead. Yeah. Good evening. Thank you for taking my question.

Just the first one on the NRT, you know, the disclosure that you have shared around the growth there, right? It’s about 25% YoY. Can you just split it out into like constant currency and, you know, what the growth was? I remember we had about INR 6 billion, INR 600 crore last year, same time, and we had INR 1 billion pre-tax profits. So how has that evolved even at these levels now? So Shyam, on the constant currency, it is year over year 8% growth. Okay. So the rest is all coming from currency change? Yeah. 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? Yeah. Shyam, first, yes. It can be right now we see upside to the model.

It’s not a significant upside. But let’s say, instead of we always had single digit, but right now it looks like on the upper side of the single digit, and it may go to double digit. Depends because we are also participating in certain tenders like Brazil and other stuff. So if you win this tender, it gives you a chunk of sales in a particular situation. Overall, it looks good. It looks that we are exceeding the expectation that we had internally. And actually, the demand for this product is higher than what we thought. Helpful. So just a sub-part of the question was on the profitability as well. I know we have done additional brand building expenses, but has the profitability materially changed? Yeah.

Because of like sales are also higher, and then it is like here the E&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. Thank you. But going forward, right now it looks really well above expectations. But let’s say I think fair assumption will be that we’ll stay with 25%. Yeah. Got it. Thank you. And just the last question to some of the opening remarks you made, Erez, on Novo strategy in Canada. Just curious, why would they want to tie up with some local organization? They didn’t defend their patents originally. Is there a chance that slippage happens across the border into the US for the lower-priced version? You know, any philosophy or thought process you’re able to understand why they’re doing it?

You know, it’s beyond my paycheck. I’m not managing overnight. I hardly manage up to read this. It is 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 will launch and other companies will 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, you know, 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 more, it will be more. Thank you. All the best. Thank you. Thanks, Shyam. The next question is from the line of Tushar Manudhane from Motilal Oswal. Tushar, please go ahead. Tushar, you are on mute, seems to be. Am I audible now? Yes, yes.

Thanks. Thanks for the opportunity. First question on India’s 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 in when you get the approval from the regulatory authority. You know, the physicians will prescribe the way they believe they should. But the indication of the product we will launch is for diabetic.

Because the concentration of the product would be relatively, or the strength of the product is relatively low for weight management, right? In that way. Also, many, many people use the Ozempic for the same. But yeah, for the second discussion, the equivalent of Wegovy will come later. In March, we will launch. But in India, we have all strengths. We will have the Rybelsus, the injection, as well as the oral. Got it. So secondly, just on this Rituximab, let’s say if at all that reinspection happens post your response. In your experience, has it happened like US FDA comes only for a particular line for inspection and doesn’t inspect the entire site as such? No, absolutely. This is what PAI, pre-approval inspection is all about. So they are coming for a specific line. They can extend it if they wish. It’s up to them.

But it’s very, very common, especially on sterile product. Got it. And on the same thing, what would be the tentative timeline for submitting the subcutaneous version filing for US FDA? Filing times, guys, remember? The sub-Q for the US. US is July 2026. In July, we will submit, and we hope to get approval at the patent date, which is January or February 2028. Got it. And just one more from my side, R&D spend guidance, if you could share. Sorry? What to share? R&D guidance. Because it’s in the range of 7-8% what we have guided earlier. That is a permanent set. But now that major product, I guess it was with respect to Abatacept, is largely done. So you think that we will be still on the higher side of this guidance, at least for FY27?

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%-8% range. When we finish a bucket of products, we obviously want to develop more products. We have aspiration to launch hundreds of products in the next 15 years. So there is enough product to develop. So it’s more of what we can afford in a particular time and our capacity in R&D. Yes, agreed. Great. Absolutely. Thanks. Thanks and all the best. Thank you. Thanks, Tushar. The next question is from the line of Vivek Agarwal from Citi. Vivek, please go ahead. Yeah, thanks. 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. Just want to understand the outlook here.

Are we expecting any kind of decline in SG&A spend next year in FY27, or is it, or it can still grow, yeah, maybe at a lower rate? So if you can help us understand. Thank you. Vivek, if you see like at the lower linear sales for the quarter and ours as a percentage to the sales is SG&A still is like without this labor law codes impact at 30%. And then in this 30% also the way in which like a Forex has given the favorable impact on the top line. Here also like where our SG&A spends also there in Russia, in Europe for the NRT, there is a like a Forex impact also is there SG&A.

Considering and also we are continuing to invest. I think if you look at like how our branded businesses growth, be it India, emerging markets, NRT, all are on the solid path of growth. Despite we have continued to invest at the then as 30% of the sales, we believe. I think we are in control of the overall SG&A. Understood. That makes sense. Just want to understand an absolute level, right? In the absolute terms, are we expecting any kind of moderation or decline in next year, or it can still grow from here on? You’ll see that it will grow less. Moderation of the growth. Yeah. The reason for that, and we discussed it in the past, we obviously prepared for the post-LINA era for quite some time. We knew it is coming.

We are aware of the implications. It did not come as a surprise to us. And part of our cost containment, which is one of the key principles that I mentioned, is that we want to control the cost. So also the SG&A, the idea is that overall the discretionary cost we are controlling very much, like we discussed in the past. And the pace of the growth of the cost will be less than half of the growth of the top line. Thanks. Thanks, Erez. That’s from my side. Thank you. Thanks, Vivek. The next question is from the line of Kunal Lakhan from CLSA. Kunal, please go ahead. Kunal, you are on mute. Yeah, hi. Hi. Thanks. Thanks for taking my question. My question was on the emerging markets, especially Russia. We saw some good growth numbers this quarter.

I do read your commentary that it’s primarily driven by new product launches. Just wanted to understand how much of this growth was because of the new products and how much was the base business growth here? It is both. It is both. And so we have growth in all three segments in Russia, meaning the retail, the hospitals, and the retail bought on the RX and the OTC. So it’s both, you know, the old product as well as new product. And also in terms of pipeline of new products, if you can give some color on the coming in the coming quarters and years, how does the pipeline look like? And whether this growth is sustainable once the current high base is actually in the base? So the growth in Russia is sustainable.

Not always you’ll see 21% growth every quarter, but double digit, healthy double digit in Russia is absolutely sustainable. Sure. Thanks. That’s helpful. All the best. Thanks, Kunal. The next question is from the line of Shashank Krishnakumar from MK Global. Shashank, please go ahead. Hi. Thanks for taking my question. Just one question on our SEMA tablets filing in India. I think the SEC has asked for some on-site verification of our phase three trial data. Now, is it something that could it? Does it typically meaningfully impact approval timelines, or is it sort of relatively easier to address? Just wanted to understand that. I don’t have any concerns on this one. Got it. Thanks. And just a related question. So post-March, subject to an approval, there is no litigation overhang even for the launch of tablets, right, in India? Correct. Got it. Thank you. That’s helpful.

That’s it from me. Thanks, Shashank. The next question is from the line of Surya Patra from PhillipCapital. Surya, please go ahead. Yeah. Thanks for the opportunity. My first question is on the Aurigene CDMO opportunity that in the opening remark, 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 would that be fructifying, and how important in terms of the revenue contribution that we should be seeing out of it? So as we speak, this is still a small business. So we, as I’m sure you all recall, we started the CDMO efforts in a more, let’s say, let’s say with, let’s say, more emphasis on this activity for the last two years.

What we try today to do is to engage meaningful products and get initially. We start with phase one, phase two, and we are very happy that efforts that started about two years ago now started to yield. How significant it is now? It’s not that significant, but we should absolutely see, I believe, $100+ million coming to us as a growth in the next two to three years from that. From the overall scheme is not big, but for the CDMO business, it is an important place because it will allow them to have sustainable capabilities over time. Sure. My second question is on the lenalidomide. So knowing the fact that we are an integrated player means having our own API also for that.

So given that situation, what is the kind of a tail-end opportunity in the lenalidomide that we should be seeing? We’ll continue to be in the product, but given the fact that we are comparing it to the period of time which we had this agreement, I always advise the people not to give a value to it. So it will not confuse all of you. So you should assume that the old arrangement from Q4 is zero. Doesn’t mean that it will not sell, but let’s say just for another generic molecule. Another as for clarity, just it will help everybody. Sure. Sure. Just one bookkeeping 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, means what is 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. So in the results, Surya, if you see that, I think for each of the sales we have called out, especially in the Europe and EM, there’s definitely a Forex element. At the same time, in the SG&A as well as Capex, whatever we import also, we have to account at a higher price. There is a net net, if you ask, and then there’s a positive impact on the EBITDA margins. Sure. Are we quantifying, sir? May not, I think we have. It’s not, I think, significant, I think, because there are several factors.

It’s not that significant. I don’t remember exactly the numbers, but it is not like it’s not very significant for the second analysis. It’s. I don’t remember exactly the percentage, but it’s not huge. Yes. Sure. Sure. Yeah. Thank you, sir. Wish you all the best. Yeah. Thanks, Surya. In the interest of time, we will take one last question from Forum Parikh from Bank of Baroda Capital Markets. Forum, please go ahead. Thank you for the opportunity. 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 FY27, 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 will not.

I think you should feel that we feel very, very comfortable with the 15% plus. Can it be more than 19%? It can, but I don’t recommend to use it for now. What we can say is that the 15%-16% is very sustainable. The rest is dependent on certain scenarios. But it might. It might. Plus, we are not done with BD. So likely the things will come, but of course, we cannot guide for it. Okay. That’s helpful. My second question is on the European side, ex-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 European region ex-NRT scale north of 20% or so? Again, it can, but it depends on the scenarios.

So I think what I can say about Europe, and this is something that we are very proud of, you know, in 2018, we had less than EUR 100 million sales in Europe. And in the future, in the next two or three years, we will see 10 times this number. So it’s emphasized the importance of Europe for us. Europe is not only what we do in Europe, but also what we do with partners in Europe. So it’s very, very important for us because we will not have capability in all the markets. So the answer, if it’s possible, it is possible. We are not guiding for that. What we are saying is that all markets should grow double digit. Beside the United States, that will grow single digit, and this is without taking the impact of LINA. Like I mentioned, from next quarter, this arrangement is done.

And that’s how we should see. Sure. And last question is on the global generics gross margin. As Revlimid sales have come down, we’re seeing gross margins also coming down to 57%. So from next quarter onwards, with zero Revlimid sales, can the gross margin thereby scale down further? So we can expect without a Revlimid scenario from Q4 onwards, our gross margin of both global generics and PSA in the range of 50%-55% because I don’t know, some quarters depends upon the products and business makes it vary. But the range is like a 50%-55% is the range. Sure. Thanks for taking my question. Thank you. Thanks, Forum. And that was the last question for the call today. Thank you all for joining us. We value your time and participation on the call.

If you have any further questions or need additional information, please do feel free to reach out to me. With that, we conclude today’s earnings call. Thank you, everyone. Thank you. Thank you, guys.