Ladies and gentlemen, good day and welcome to the Q4 FY22 earnings conference call of Dr. Reddy's Laboratories Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Agarwal, Head of Investor Relations. Thank you, and over to you, sir.
Thank you. Very good morning and good evening to all of you, and thank you for joining us today for the Dr. Reddy's earnings conference call for the quarter and full year ending March 31, 2022. Earlier during the day, we have released our results, and the same are also posted on our website. This call is being recorded, and a playback and transcript shall be made available on our website soon. All the discussions and analysis of this call will be based on the IFRS consolidated financial statements. To discuss the business performance and outlook, we have the leadership team of Dr. Reddy's comprising Mr. G.V. Prasad, our Co-Chairman and Managing Director, Mr. Erez Israeli, our CEO, Mr. Parag Agarwal, our CFO, and the investor relations team. Please note that today's call is a copyrighted material of Dr.
Reddy's and cannot be rebroadcast or attributed in press or media outlets without the company's express written consent. Before I proceed with the call, I would like to remind everyone that the safe harbor contained in today's press release also pertains to this conference call. Now I hand over the call to Mr. G.V. Prasad. Over to you, sir.
Thank you, Amit. Good evening and good morning and welcome to all of you to this earnings call. Fiscal 2022 has been quite a challenging year. It started with the severe wave of COVID in India and ended with heightened geopolitical conflict, inflationary environment, and economic crisis in certain parts of the world. I'm proud that despite all these challenges, our team has delivered very good operational results. Over the last few years, we've been able to grow on a consistent basis, and the key highlights of this year are healthy revenue growth with steady margins, good progress on the productivity journey, some meaningful launches of products across markets, enhanced offering of the much-needed COVID products, and closure of a few significant business development deals.
Our priorities for FY 2023 will be to strengthen our product pipeline across markets, focus on enhancing our quality systems, continue with the productivity agenda, and make value accretive inorganic moves. While we continue to focus and grow our core businesses, we will also invest in creating future growth drivers. Our CEO, Erez, would cover these aspects in some detail. Sustainability is another area we have made significant progress, but there is a lot more to do. We are on a journey to integrate sustainability into our core business strategy and the execution system. We have identified multiple areas where we can work towards improving the environment and the societal benefit. Shortly, we will announce our detailed ESG targets for the long term.
We continue to be driven by our credo of Good Health Can’t Wait, and we keep the interests of our patients first and will continue to serve them in every possible way with utmost urgency and diligence. With this, I hand over the call to Parag for taking you through the financial performance of your company. Thank you, Prasad, and greetings to everyone. Hope all of you are keeping well. I'm pleased to take you through our results for the quarter four and full year of fiscal 2022. It is yet another year of good financial performance with growth in sales and EBITDA and a strong cash flow generation from operations. While we faced several headwinds during the year, we mitigated these through productivity initiatives and a few one-time opportunities.
Let me take you through the key financial highlights for the quarter and FY 2022 in a bit more detail. For this section, all the amounts are translated into US dollar at a convenience translation rate of 57.87, which is the rate as of March 31, 2022. Consolidated revenues for the quarter stood at INR 45,437 crores, that is $717 million, and grew by 15% on year-on-year basis and by 2% on a sequential quarter basis. The growth has been driven by all markets in our global generics segment and divestment of a few non-core brands. The revenues for the financial year 2022 stood at INR 21,439 crores, that is $2.83 billion, and grew by 13%.
The growth was supported by improvement in the base business volumes and new product launches. Consolidated gross profit margin for this quarter has been 52.9%, a decline of 80 basis points year-on-year and 90 basis points on quater-on-quater basis. While the growth margins benefited from brand divestment income, the decline was primarily attributable to pricing pressure in North America and Europe, combined with the effect of increasing commodity prices. We also had higher provisioning for inventory, including for COVID-related products. Gross margin for the global generics and PSAI business were at 58.2% and 18.4% for the quarter. Gross margin for FY 2022 has been 53.1%, which is a decline of 120 basis points over FY 2021.
Gross margin for the global generics and PSA business were 57.6% and 22.2% for the year. The SG&A spend for the quarter is INR 1,567 crores, that is $207 million, an increase of 9% year-on-year and 2% quarter-on-quarter. During the quarter, we made a provision of INR 98 crores towards an old outstanding litigation with the state of Texas, U.S. Adjusted for this charge, we were in line with normalized level of spend. The SG&A spend for the year is INR 6,208 crores, that is $818 million, and has grown by 14% in line with business growth. The SG&A cost as a percentage to sales was 29.0%, which is largely in line with previous year.
While we will continue to drive productivity, in parallel, we would also invest in markets to strengthen our brand's positioning, expand market reach in various channels and new countries, continue digitalization agenda, and nurture new businesses. The R&D spend for the quarter is INR 433 crore, that is $57 million, and is at 8% of sales. The R&D spend for FY 2022 is INR 1,748 crore, that is $230 million. R&D percentage to sales for the year stood at 8.2%. While we optimize the spend in proprietary products business, we enhance our pipeline and correspondingly the spend for generics, biosimilars and NCE. During the quarter, we took an impairment charge of INR 752 crore, that is $99 million.
The impairments were largely pertaining to, first, product-related and intangible for PPC-06 from proprietary product segment, wherein the market potential has reduced. Secondly, Shreveport subsidiary-related assets, as there has been a substantial reduction in the cash flows of products forming part of the subsidiary. The EBITDA for the quarter is INR 1,298 crores, that is $171 million, and the EBITDA margin is 23.9%. The EBITDA for the year is INR 5,140 crores, that is $677 million. EBITDA margin for the year is at 24.0% and is closely tracking our aspiration target of 25%.
Our profit before tax for the quarter stood at INR 248 crores, that is $33 million, and that for the year stood at INR 3,230 crores, that is $426 million. Adjusted for the impairment and the Texas litigation charges, our profit before tax for the quarter grew by 37% and for the year by 17%. Effective tax rate for the quarter has been at 64.8%, and that for the year has been at 27.0%. The ETR was higher due to an impact of impairment charges taken. We expect our normal ETR to be in the range of 24%-26%.
Profit after tax for the quarter stood at INR 88 crore, that is $12 million, and that for the year stood at INR 2,367 crore, that is $311 million. Reported EPS for the quarter is INR 5.26, and that for the year is INR 141.69. Operating working capital increased by INR 444 crore, which is $69 million, against that on December 31, 2021, mainly driven by increase in receivables and inventory. Our capital investment stood at INR 374 crore, which is $49 million in this quarter, and INR 1,466 crore, which is $193 million during the year. The free cash flow generated during this quarter was at INR 482 crore, which is $64 million.
The free cash flow generated during this year was at INR 1,157 crores, which is $152 million. Consequently, we now have a net surplus cash of INR 1,545 crores, that is $204 million as on March 31, 2022. Foreign currency cash flow hedges in the form of derivatives for the US dollar are approximately $342 million, largely hedged around the range of INR 76.5-INR 79.4 to the dollar. RUB 9.6 billion at the rate of INR 0.9299 to the ruble. AUD 4.4 million at the rate of INR 55.38 to the Australian dollar.
South African rand ZAR 122 million at the rate of INR 4.83 to South African rand, maturing in the next 12 months. With this, I now request Erez Israeli to take you through the key business highlights.
Thank you, Parag. Good morning and good evening to everyone. As Parag highlighted, the FY 2022 has been quite a challenging year, yet it is been fulfilling. We rose to the challenges and have been able to deliver a steady and sustained performance. We have revisited our strategy to cater to the new opportunities and mitigate risk. Our financial strength of strong balance sheet creates an opportunity for us to grow in the current business environment. Let me take you to some of the key highlights of the year. One is strong growth across branded markets of India and emerging markets. Steady growth across generics markets. We regained milestone revenue of $1 billion in North America generics. Improved market share in most of our major markets. EBITDA and ROC in the range of our aspirational targets.
Generation of strong free cash flow leading to a net surplus of more than $200 million. Entered high growth space of medical cannabis business in Germany through acquisition of Nimbus Health, exclusive collaboration with Novartis for in-licensing of key brands in India market, and significant progress made in our digitalization and sustainability journey. Additionally, we continue to focus on productivity while simultaneously making investments to strengthen our pipelines and capabilities. While our core business of generic and NPI will continue to drive growth in the near and midterm, that is what we call Horizon One, we are encouraged to witness several incremental opportunities, such as scaling up of our existing small-sized businesses and creation of new business models for a long-term growth. That is, for us, Horizon Two.
Our financial strength allow us to grow and invest for both Horizon One and Horizon Two businesses. Now, let me take you through the key business highlights for the Q4 and as well as the full year of 2022. Please note that all reference to these numbers in this section are in respective local currencies. Our North America generic business recorded sales of $465 million for the quarter, with a strong growth of 11% YoY and 7% on sequential basis. On a full year basis, we recorded sales of $1,003 million, with a growth of 6% over the previous years. This growth was largely led by key new product launches such as icosapent, Eplerenone , and vasopressin for injection.
We were able to also to grow market share for many of our existing products, which helped to partially mitigate the impact of the price erosion. We launched three new products during the quarter and overall 17 products during the year. We expect the launch momentum to further improve in FY 2023. Our Euro business recorded sales of EUR 53 million this quarter, with a strong year-on-year growth of 17% and sequential quarter growth of 11%. On a full year basis, the sales were EUR 192 million and has grown by 8%, driven by new product launches. During the quarter, we launched 4 products in Germany, 2 products each in Italy and Spain, and 1 each in UK and France. During the full year, we had 34 new launches across our market in Europe.
We expect this strong launch momentum to continue in FY 2023. Our emerging market business recorded sales of INR 1,201 crore with a YoY growth of 36% and a sequential quarter growth of 4%. On a full year basis, emerging market sales has been INR 4,567 crore and grew by 30%. We launched 16 new products during the quarter and 86 new products during the year across various countries of the emerging markets. Within the emerging market segment, the Russia business in quarter four grew by 87% on a YoY basis and 62% on a quarter-to-quarter basis in constant currency. In FY 2022, Russia business grew by 38% in constant currency.
This strong performance in Russia was partially led by divestment income of two brands and higher Q4 sales on account of stocking up, which we expect to normalize during the coming quarter. The current war situation in Russia and Ukraine raised several business uncertainties and significant fluctuation in the currency rates. We have managed the situation very well and ensure the safety of our employees, continuity of the business operation, and financially securing the near term with effective hedging. Our India business recorded sales of INR 969 crore with a YoY growth of 15% and sequential decline of 6%. On a full year basis, our sales was INR 4,196 crore with a strong growth of 26%. During the quarter, we launched eight new products in the Indian market.
As per the IQVIA report of March 2022, we are ranked number 11 on a monthly basis. India remains our priority market, and we are committed to continue to grow this business at healthy rates. Our PSAI business recorded sales of $100 million with a year-on-year decline of 8% and sequential growth of 3%. On a full year basis, the sales were $411 million with a decline of 5%. During the year, there was destocking in the channel customer stocking level after the restrictions in FY 2021. We believe that the customer stock level are now back to pre-COVID level, and we should witness steadier growth in the business in FY 2023.
On the R&D front, our focus has been on building a global pipeline of value-assertive products, including several generics, injectables and biosimilars. We are also selectively investing in a few NCE product candidates. While the number of products filing in the current year has been slightly lower, however we are on track to accelerate this in April 2023. Additionally, we are prepared to leverage our balance sheet strength to invest in value-assertive inorganic moves. I would like to remind that there are several factors which have an impact on the short-term performance of the company, including evolving geopolitical situation and higher commodity price. However, I'm confident that we will emerge stronger with every challenge. We do see opportunities in the current situation and are readjusting our strategy to cater to the new opportunities for future growth.
In the coming months, we'll be holding our investor day and take you through the growth leaders for Horizon One, Horizon Two, and our approach and goals toward ESG. With this, I would like to open the floor for questions and answers.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Ankush from Axis Securities. Please go ahead.
Hello. My question is that about the US business. How much of the sales is contributed by the new launches for FY 2022 and last year?
The growth is attributed by two factors. One, our new products, and I noted two of them, Icosapent and vasopressin, as well as a growth in market share of existing products. Both of them contribute significantly to the growth.
Can I say that it's $1,000 million sales in the U.S. market for the full year that the new launches has contributed, how much sales new launches has contributed, if you quantify, sir. How many new products that we are looking to launch next year?
Overall, as you know, the price erosion in the U.S. business is in double digits, and that's more than offset by the new product launches and the share gains. I can, without disclosing any specific numbers, confirm that the new product launches would contribute in double digits to the overall revenue.
Thank you. Sir, how many new products that we are looking to launch next year?
The momentum will continue. This year, as you know, in North America, we launched 17 products. We expect to launch about 20 to 25 new products in FY 2023.
What is the strategy for the Indian market, sir? How we are looking the launch of a new product, specifically, the growth in the Indian market, sir?
We will continue to launch similar numbers of products like this year. At the same time, the main growth in India will come first from the growing of the brands that we are investing behind that will continue to generate the main growth in the markets. Second, the inorganic moves that we already disclose as well as additional moves that we are working on as we speak. In addition to that, we will have a new product that will come as part of the pipeline, which will have similar numbers that we had this year. In addition to that, this is what we called Horizon One.
As part of Horizon Two, we are going to have additional moves in the area that we will disclose more during the investor day, but this will be in the area of activity that we have such as, which is our outpatient initiative, as well in the areas of nutrition, biologics, activities and digital. Overall, India is a major market for us and will continue to be a focus market for us for many years to come.
Thank you, sir. Thanks so much. Thank you.
Thank you. The next question is from the line of Kunal Dhamesha from Macquarie. Please go ahead.
Hi. Congratulations on the good set of numbers, and thanks for taking my question. The first question is related to the COVID contribution for FY 2022. If you can give a broader, you know, idea what contribution in terms of revenue was from the COVID or related products, especially on India side and emerging market side.
The contribution, as you know, both India and emerging markets have grown this year in strong double digits. A good amount of this growth came from COVID, but even after excluding the impact of COVID portfolio, both these markets still recorded double-digit growth. Overall, I would say for the company as a whole, the contribution of COVID product sales overall is less than 4%.
Sure. For the India market, barring the inorganic activity, which is when it happens, what is our organic growth target for FY 2023? You know, if you can just broadly give the growth drivers in terms of pricing, volume and I think new products we are already aware, but would pricing be a very significant driver for us this year?
As you know, we are not guiding in that level of detail. We are expecting India to continue to grow organically in double digits in next year.
Okay. Thank you. Second question is on the capital expenditure for FY 2023. This year we had some good amount of CapEx, I think, for the European facility. What would be the guidance for FY 2023?
For FY 2023, we expect the capital expenditure overall to be at similar levels, around somewhere between INR 1,500-1,700 crores.
I believe that would mean some additional facilities, so for which geography and for which, you know, injectable or oral solids, which kind of, you know, dosage form we are looking at?
We are not anticipating the need for additional facility. The investment is primarily in the facilities that we have. FTO 11, which are coming up, injectable facilities that we are investing in it, actually quite a lot in the last couple of years will be one place of that the CapEx will grow as well as in our biologics and the digital. This will be the main focus of the investment.
Okay, sure. Looking forward for the investor day. Thank you.
Thank you. The next question is from the line of Neha Manpuria from Bank of America. Please go ahead.
Thank you for taking my question. It is on the emerging market business. One, if I were to look at emerging market ex-Russia and Ukraine, that seems to have come off significantly for what we were doing, you know, in the first three quarters. I understand there's some amount of COVID contribution. Is it fair to assume that, you know, the run rate that you have done in this quarter is the base on which we will grow? Or is there any one-off or deferment of shipment that we should keep in mind?
No, no one-offs in those markets. These markets are growing very, very well and will continue to grow in that level. Just, if you recall, we discussed that, the part of the strategy is to take our portfolio globally.
Mm-hmm.
EM is actually doing it well, especially on the injectable side. The EM will continue to grow, including smaller markets, based on the leverage of that portfolio as well as local brands, but primarily the leverage.
Understood.
It will be the nice contributors to the growth.
On Russia, you know, in normalizing for the stocking up that we would have seen in the quarter in the recent weeks, have we seen any change in the demand patterns there or, you know, sales there that you would like to highlight? Or should we assume that Russia would remain on the double-digit growth path that we have seen in the last year?
I believe that we will see some normalization of what we discussed. Overall, we believe that Russia is an opportunity, especially as some of the players will not invest in marketing their products over time. We will continue to operate business as usual. What we don't know, of course, is what will be the impact on the overall economy of Russia. This is, of course, something that we have to be seen.
Fair enough. My last question is on margins. If I were to adjust all the one-offs we did about, you know, 21% margin in the quarter, I understand there is Revlimid that is coming, you know, generic Revlimid that is coming through. Core margins excluding Revlimid, is this the base? Given the investments that we have planned, do you think, you know, margin expansion from here would be tough ex Revlimid?
We believe that the number is higher than the number that you mentioned.
Mm-hmm.
At least the way I see it is actually 24%. We believe that we want to stay in the neighborhood of the guidance that we gave in the past. We are comfortable with the 25, and we will give or take being that area, as we want to take whatever additional resources we have for investment in the future. We are maintaining our ability, and we believe that we can, for both maintaining this level of profitability as well as to invest in the future, especially now, considering our agenda.
Just to, you know, clarify that, you maintain the level of profitability even without even excluding Revlimid?
We are not guiding with and without, because naturally, first we don't, and second, I wish I knew exactly what will happen. You know that.
Sure.
Let's say, in long term, no matter what will be the scenario also Revlimid, we are absolutely aiming for the same levels.
Got it. Thank you so much, Erez.
Thank you. The next question is from the line of Surya Patra from PhillipCapital. Please go ahead.
Yes. Thanks for this opportunity, sir. The first question is on the cost front.
Despite all the challenges what we have seen, we have managed to deliver a strong gross margins and all that. Going ahead, given do you think any cost challenges that we will be facing incrementally, given the supply shortages that is likely to be seen, given the Chinese lockdown and all that? That is one. Secondly, you have talked about the phase one growth, what we have already seen, and you are designing and devising a phase two kind of a growth phase for Dr. Reddy's with new product launches and you know, specialty offerings and all that. Whether in the phase two, we'll see a kind of a challenging growth phase in the initial period in terms of cost, given the higher expenditure around the development and all that.
Something on the cost front, how would that be really shaping up, and how would that be having impact on the overall margins for Dr. Reddy's?
Like everybody else in the industry, we are facing some increase of cost, whether it's commodity prices as well as in things that are related to logistics, transportations, and stuff like that. It's unfortunately not the first quarter that we see that. It's something that is gradually built up since COVID. We absolutely saw in anticipating situation like that also recently. We were able to mitigate most of it by, first of all, having a very effective supply chain. We are not dependent on any specific territories as or whether it's geography or specific vendors. We are able to maintain the competitive fulfillment.
Our logistics is primarily done by sea and less by air, and this is allowing us to mitigate some of those challenges. We are moving into, over time, to renewable energy. This is mostly a mid to long-term natural initiative, but this is enabling us also to deal with the energy potential future challenges. We may see a certain, let's say, the cost may fluctuate from quarter to quarter, but long term, I believe that we are well set to mitigate those challenges.
Okay. Thanks, sir. The second question is on the US growth front. See, as you have been continuously mentioning that double-digit kind of price erosion, that is, kind of the norm in the US business front. In the recent past, our trend towards US also has moderated because we are prioritizing the non-US markets for growth. Given that and the continuing price erosion scenario, is it fair to believe that sales of Revlimid, we may see a flattish kind of US performance? Any sense on that, sir? I'm not asking about any guidance, but.
Our U.S. business will grow, and from time to time we'll have launches in addition to the other activities that we do. That's what we also did in the last 11 quarters. I believe that we grew 9 out of the last 11 quarters, and this is before even Revlimid. This is likely to continue. Because of timing of those launches, we may see also fluctuation in the sales in the United States, but overall, I believe that on the annual basis we will grow in United States in the coming years. In addition to that, we are investing in the building platform that are outside of the business model that allow us also to grow long-term in the big space. We want to stay in America.
We believe in America. America will continue to be an important market for us. In the generics segment, likely it will not grow like we will grow outside of the U.S., but other growth drivers that we are now working on will absolutely continue to grow as in America, in the same way that we are growing in other places, long term.
Okay. Just last one, sir. On the inorganic growth front, when you mentioned about that, are you talking about only inorganic growth within India, or it is even you are open for international activity also? In the areas that, if it is there, then the areas that you would be interested in, if you can just say something there.
We are open to inorganic moves in every one of our businesses. In terms of preference, just India is absolutely a preference. In terms of what kind of development, we prefer product acquisitions and as a complementary move to the spaces that we put as a focus in our strategy. That most of our inorganic activities were around products. We are naturally disclosing those that are relatively big, but we are all the time working to strengthen our portfolio also through inorganic and re-licensing activities. In terms of, we are also preferring not to make a kind of big acquisition, but rather a complementary that will give us the relevant capacity, stuff like that.
We want to remain primarily an organic growth organization.
Sure. Thank you. Wish you all the best.
Thank you. The next question is from the line of Nikhil Mathur from HDFC Mutual Fund. Please go ahead.
Yeah, hi. Good evening, everyone. My first question is around the Russian market. In line with the global sanctions that the West applied on Russia, we came across many media articles in which many global innovator companies, they are either withdrawing from Russian market or they are curtailing their operations there. Have you had any discussions with the procurement ecosystem in the Russian market that this could be a fairly structural and substantial opportunity for Dr. Reddy's given your legacy presence in the market? Obviously, there are challenges currently, but still, I mean, could this emerge as a long-term, say, 2-4-year structural positive for the company?
We do see that as an opportunity for us. We cannot discuss now any specific discussions, but it's absolutely one of the avenues that we are discussing as we speak.
Okay. Second question is on the broader U.S. outlook. Two questions related to the U.S. One is on the opportunity next three years, excluding Revlimid. How do you see the addressable opportunity in terms of brands losing exclusivity next three years versus the preceding three years, period?
Without Revlimid, we do see it in the same way that we saw it this year. We have in addition to that, like parag mentioned, 20-25 new launches, which will not be only as sizable as Revlimid, but will contribute to us. I believe that the price erosion will continue. In that way, I don't think that things will change dramatically for us.
Okay. Got it. One final question related to the U.S. market. Just now in one of the earnings call concluded for one of your peers, this question was asked. I'm just repeating that question again. Progressively quarter-on-quarter, we've seen the margins and the return ratios getting depressed in the U.S. market. Now with the added pressure of cost inflation. Any color can you give as to till what time can this pain continue before rationality kicks in? I mean, in the past we have seen global companies withdrawing, but do you think that even the Indian companies which today are at 100, 200, 20 million dollars kind of a sales base in the U.S., they are also might have to pull out or curtail their ambitions in the U.S. market.
Do you think we have reached that stage that pain has to be somehow mitigated?
I will answer this question. I think the U.S. market will always remain price competitive. There's always been pricing pressure. It's not new, and it will not end. It will continue. It depends on how well you choose your portfolio, how well you execute the price, and how competitive you are to continue to establish your presence there. We are taking a number of steps to strengthen our portfolio, lower our costs, improve our market share, and we hope to continue to grow in the U.S.
The U.S. will stay an important market for us. As I mentioned, we want to be stronger in the generic space, but we are also working on moves outside of that area as well.
I think it is. I mean, I kind of understand that. I mean, you have made your strategy quite clear. I was just hoping to get some comments on how do you see the competition reacting to the current state of affairs in the U.S. market. I mean, it's fine. I mean, if you people want to reserve your comment, but.
I believe that it will continue. That's how we see it. We don't see significant change coming up, or a disruption to the current state as is.
Great. Absolutely. That's quite clear. Thanks a lot.
Thank you. The next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead.
Yeah. Hi, good evening to all. Couple of questions. First on the COVID-related products, you mentioned this 4% contribution, but is there any write-offs which we might have taken at the inventory level in the full year or the quarter?
Inventory provisions related to COVID are. There are some write-offs, but they are not significant overall. The overall inventory levels we are carrying for our COVID products are also not material. We are obviously stocked up adequately to meet any potential demand, but the overall levels are not material.
Okay. When you say non-material, I would understand it would be under 1%.
I wouldn't put a number to it. It is not material in the overall context of our business.
We will not confirm or deny that.
Okay, sir. Got it. Secondly, on the proprietary business that we have built over years. I understand most of the assets are largely, you know, either out-licensed or a couple of them have been discontinued. So going forward, what is the income stream for this? One is I understand the milestones, but we don't have anything in the channel for future new out-licensing. Would that be correct understanding?
No. On the specialty side, there's nothing significant out there. There are some single-digit income streams which will continue, single-digit $ million. Beyond that, there's nothing much left.
Because if I'm not wrong, this has contributed significantly in terms of out-licensing, which is, you know, flowed down from gross margin to EBITDA and has contributed significantly at the margins. Correct me if I'm wrong, and if not in future, then, given your commentary on raw material prices and et cetera, cost inflation, this would be an extra margin pressure point for us. Would that be correct?
Let me clarify, maybe. First of all, on specialty, we have two parts. We have those products that we discussed that were in the form of 505(b)(2) for the United States. As you stated, rightly so, most of them were licensed or discontinued. As we speak, we are enjoying certain levels of royalties as well as future milestones that may come. We will enjoy the income of those milestones at the time that it will come, especially on products like Elyxyb and et cetera. We have also activities that are related to NCE.
This is what I mentioned in my script, that we are selectively invest now in certain anti-cancer products as part of our subsidiary of Aurigene Discovery. This is more of a long-term and in-depth frame. We are also licensing and have collaborations with in the United States with partners. We are working both to license those products as well as maybe one day in the future to build ourselves. In terms of contribution to the margin and stuff like that, I think we had indeed fee from licensing in Q2. In Q4, there was no activity as such.
The last point was not clear. What did impact on margins?
I don't know any margin. There was no activity, therefore no impact in the margins.
I'm not sure I got it right, but okay. I also want to
Maybe I did not get your question. What effect on margin and by when? Sorry, sir.
Prakash, what Erez mentioned is basically in quarter four, there was no licensing income we have received. The quarter four numbers are without any margin benefit.
Perfect. That run rate is also like the 69 crore is the ongoing proprietary sales. That can continue, correct?
Proprietary plus Originator, it is combined sales.
Okay. That can continue, and if there are lumpiness, that might not continue.
There will be lumpiness. It is not a smooth curve because these are milestone-driven, gain-driven.
Yeah. Okay. Got it. Fair enough. Lastly, sir, on the two good products that you have, Vascepa and vasopressin. These have seen market share inching up, but not to the level that one could have expected. Is there a scale-up issue or we expect or you have already achieved the fair share and we are not able to see in the, you know, the database?
We believe that we have a good share of in this product.
Yeah. We can't give the granular numbers to you.
Have you achieved the fair share, sir, on Vascepa of 15%, 13%-15%?
We have a very good share on this product.
Since it is a recent launch, vasopressin, this is still under the scale-up phase. Would that be correct understanding?
We have also a good share on this product.
Okay, sir. Thank you. Thank you and all the best.
Thank you. The next question is from the line of Saion Mukherjee from Morgan Stanley. Please go ahead.
Hi. Thank you so much, and good evening, everyone. Most of my questions have been asked, but just a couple of them more. One is, what's the current exposure to Ukraine market, and are we holding any receivables over there?
The level of exposure is not material and there is no any material adverse events or significant adverse events that we anticipate in the future.
Okay, great. Yeah. Thank you. Erez, you mentioned couple of times that, for the U.S. market, you are putting in some effort outside of the generic business. Can you elaborate on that? Was it the NCE effort or is it something else?
We will elaborate more in the Investor Day, but we are, as we speak, exploring other channels which are not exposed to the current business model in the United States, of course, high level of price erosion that needs to be mitigated by products. We are exploring and even dealing with opportunities that are not part of that business model.
Okay, great. We will wait for the details. The other question arises from two efforts that you have put in India. One is Sputnik vaccine, and the other is outpatient health online healthcare platform. If you can update us on both of these. Thank you.
Sure. Sure. On Sputnik, the main effort is on Sputnik Light, and we got approval for Sputnik Light as a vaccine and as a booster for Sputnik vaccine. We are now conducting a trial that we will have the result next coming weeks, as a vaccine, for other products, for other vaccines, in India. We hope to obtain approval for that. This will allow us to compete on the entire India market, potentially if we get approval. The second effort that we did on Sputnik is that we repatriate the product to India, so all the activities on Sputnik are now in India. We are not dependent on Russia in any shape and form, for that effort. Sorry, your the second part?
On Svaas.
On SVAAS, we are scaling up. We are adding more and more cities in the network, and it's a scale-up mode. So far it looks very, very promising, but naturally it's an early stage for this initiative. It looks very, very promising, and the service and features so far is positive.
Okay, great. Thank you so much, and we look forward to our listing. Thank you.
Thank you, Saion Mukherjee.
Thank you. The next question is from the line of Vishal Manchanda from Nirmal Bang. Please go ahead.
Thanks for the opportunity. With respect to the two brands that you divested in Russia and CIS, Ciprolet and Levolet, can you share what's their contribution, since these sales from these brands would not recur going forward?
Sorry, contribution? I couldn't catch the question.
What is the contribution of the brands in Russia?
Levolet and Ciprolet.
Sale of these brands.
That would be about INR 50 crore-INR 60 crore per annum. Yeah.
Okay. Even without these brands coming in, contributing next year, you would grow double digits in these markets?
Yes.
Yes.
Okay. Just one more on Rituximab biosimilar. Two things. One, when do you expect to file that? Second, whether you are trying to do an interchangeability on that?
Rituximab.
The filing.
We are looking for Rituximab as a potential 2024 event. I'm talking about calendar 2024.
Are you attempting an interchangeable on that?
Interchangeability.
Yes.
Yes, of course.
Substitutable, is that right?
This is a biosimilar that should be competitive with the rest of the biosimilars of Rituximab, yes.
Okay. Just one more on China. Can you share how many approvals have you got under the Benefit-Risk Framework so far, and how many of those have been commercialized?
We actually filed for 11 products, and we received three approvals during the year. Overall in FY 2023 we are expecting to launch about 7 products.
How many, sir?
Seven.
Okay, thank you.
Thank you. The next question is from the line of Nitin Agarwal from DAM Capital. Please go ahead.
Hi, sir. Thanks for taking my question. My question is one on Voglibose. What opportunities do we see, you know, on this product, given the fact that this molecule has been under some growth pressures in the past?
Which molecule?
Voglibose that you acquired from Novartis, for the India market.
We see that as an important opportunity for us. First we will repatriate it to our India facility, and we believe that our cost structure will allow us to be competitive. Second, it's an area of focus for us, diabetes as well as cardiovascular. The area of chronic disease segments was always a focus for us, and this is an opportunity to bring a familiar brand to the physicians that we are visiting anyway. We believe that our margins will enable us to even grow this molecule in the future.
Thanks. Secondly, Parag, you know, in the press release you've called out for the gross margin pressure, some amount of inventory provisions. Can you just give us some sense on what would have been the quantum of these inventory provisions that would have hurt the EBITDA margins this quarter, the gross margin this quarter?
Overall, I would say the impact on the gross margin is not significant. It will be less than 50 basis points from the inventory provision.
Okay. Thank you, and that's all.
Thank you. The next question is from the line of Vinod B from InCred Capital. Please go ahead.
Hi. Most of my questions were answered. Just to follow up on Russia, could you make a few comments about how the business has changed before the war started and after that, especially in terms of logistics, payment, et cetera. Are you able to get products across easily into Russia? How are you managing the payments mechanism out of Russia, et cetera?
Sure. Let's start with the basics. We are shipping products to Russia, and we are getting money from Russia. The logistics within Russia is similar to what was before. We had to adjust our channels, the airlines or other logistics means to ship to Russia, but we do not see any issues with that. We just have to work on solutions for that. As for the payments and stuff like that, actually we saw no disruption as we speak with Russia. In terms of within the market, we are not aware of anyone that actually left the market. Probably there will be less investments in the market, but we are not aware of anyone that actually left or they changed significantly competitive landscape.
It's probably something that will happen, but as we speak, we do not see it.
Okay, got it. Thank you.
Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Amit Agarwal for closing comments.
Thank you everyone for joining us today for the earnings call. In case of any further questions, please get in touch with the investor relations team. Thank you.
Thank you. On behalf of Dr. Reddy's Laboratories Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.