Q3 20/21

Jan 28, 2021

A very good morning and good evening to all of you and thank you for joining us today for the Doctor. Eddie's earnings conference call for the quarter ended December 31, 2020. Earlier during the day, we have released our results and the same are also posted on our website. This call is being recorded and the playback and transcripts shall be made available on our website soon. All the discussions and analysis of this call We'll be based on the IFRS consolidated financial statements. To discuss the business performance and outlook, We have the leadership team of Doctor. Reddy's comprising Mr. Hiday Husraili, our CEO Mr. Faraz Agarwal, our CFO and the Investor Relations team. Please note that today's call is a copyrighted material of Doctor. Reddy's and cannot be rebroadcasted or attributed interest or media outlet without the company's expressed consent. Before I proceed with the call, I would like to remind everyone that the Safe Harbor contained in today's press release also pertains to this conference call. Now I hand over the call to Mr. Parag Agrawal. Over to you, sir. Thank you, Amit, and greetings to everyone. I hope all of you and your families are keeping safe and healthy. I'm pleased to take you through our financial results for the quarter 3 of fiscal 2021. We had yet another quarter of good Performance in terms of revenue growth and EBITDA margin, though the profits were impacted by impairment charge taken during the quarter. Let me take you through these in a bit more detail. For this section, all the amounts are translated into U. S. Dollars at a convenience translation rate of INR73.01, which is the rate as of 31 December 2020. Consolidated revenues for the quarter stood at INR 4,930 crores that is $675,000,000 and grew by 12% on a year on year basis. Growth is primarily on account of new product launches across markets. Our North American generics business grew by 9%, Europe business by 34%, India by 26%, Emerging Markets by 5% and PSEI by 1%. Sequentially, our revenues grew by 1% supported by volume pickup in India, emerging markets and Europe, how we are impacted by price erosion in North American business and lower volumes in the PSCI business. During the quarter, we recognized milestone receipts towards AUR102, one of the programs of our Origin Discovery business. Consolidated gross margin for this quarter has been 63.8%, A decline of 30 basis points year on year and 10 basis points on quarter on quarter basis. The decline is primarily on account of price erosion and lower benefits, however supported by milestone income received towards AUR102 compound and productivity improvement. Gross margin for the Global Generics and PSAI businesses were at 57.6% and 25.3%, respectively, for the quarter. The SG and A expense for the quarter is between INR 1439 crores that is US197 $1,000,000 an increase of 14% year on year and an increase of 10% quarter on quarter. The increase in expenses is due to investments made in sales and marketing and branded markets, digital capability building, Higher sales costs and certain one time expenses pertaining to this quarter. SG and A as a percentage of Sales was 29.2%, which is within our normal range. The R and D spend for the quarter is INR 411 crores that is US56 million dollars and is at 8.3 percentage of sales. The product development activities continued normally during the quarter, including development of COVID-nineteen related products. The EBITDA for the quarter is INR1185 crores, That is US162 $1,000,000 EBITDA margin is at 24% and is closely tracking our aspirational targets of 25%. In this quarter, we have taken an impairment charge of INR 597 crores that is US82 $1,000,000 The impairment has been taken primarily on 3 products related intangibles acquired from Teva in the year 2016. These are for the Murali, CentroMine and Profilumet and SecoBridfin and Metformin. We do a quarterly impairment testing analysis and as part of it we concluded that the carrying value of certain of our intangible assets are not reflected Of the current market reality and hence in line with the requirements of the accounting standards, we took this charge. Consequently, Our profit before tax for the quarter stood at INR2.84 crores that is US39 million dollars Effective tax rate for the quarter has been 93%, higher due to non recognition of deferred tax asset and losses arising out of the entire name. We expect our normal ETR to be around 25% before the impact of impairment charges. Profit after tax for the quarter stood at INR 20 crores that is $3,000,000 reported EPS for the quarter is INR 1.19. Operating working capital increased by approximately increased INR 600 crores, which is US82 million dollars There has been an increase of approximately due to reduction in discounting of receivables and the balance is in line with the normal business trend. Increased inventory was due to our planned increase in inventory for certain products to deal with any potential supply disruptions. We invested INR287 crores, which is US39 $1,000,000 towards capital investments in this quarter. The free cash flow was a net outflow of INR58 crores, which is US8 $1,000,000 after payout for the brands acquired from Denmark for the Russia and CIS markets. We had a net cash surplus as on 31 December 2020 of INR 84 crores that is US11 $1,000,000 Foreign currency cash flow hedges for the next 15 months In the form of derivatives per U. S. Dollar are approximately US535 million dollars largely held around the range of rupee 74 INR0.5 to INR77.6 to a dollar. In addition, we have cash flow hedges of ruble RUB 555-1,000,000 at the rate of INR 1.0021 to the ruble maturing over the next 15 months. With this, I now request Erez to take through the key business highlights. Over to you, Erez. Thank you, Faraz. Good morning and good evening to everyone. Hope you are having a happy, safe and healthy beginning of the New Year. The year of 2021 has started with a hope and visibility around life returning to normal after significant health care crisis and socioeconomic disruption caused by COVID-nineteen in 2020. The vaccinations program has started in several countries And we are continuing to contribute our base in this fight against the global pandemic. Recently, after the approval from BCGI, We have initiated the Phase 3 clinical trials of sputnik5 vaccine in India. The vaccine efficacy is confirmed at 91.4% Based on the data analysis of the final control points of clinical trials in Russia, we have further strengthened our partnership with RDIS and with RDIS and has been confirmed as the preferred marketing partner to enable the safe and expeditious distribution of the vaccine in India. During this quarter, we continued in our growth journey and achieved higher ever quarterly sales, Healthy EBITDA margins once again turned net cash positive as of December 2020. We saw a healthy growth across our branded markets in Europe, while the market demand in India, Russia We continue to progress well on our strategy of diversified business model and creating the right levers of growth for each one of our businesses. This includes building a healthy product pipeline, focus on productivity, improvement in marketing capability In strengthening of processes led by digitalization initiatives, the strong balance sheet position allow us to continue to invest in the right set of opportunities for future growth. Now let me take you through the key business highlights and for each one of our businesses. Please note that all references to the numbers in these sections are in respective local currencies. Our North America generic business recorded sales of $235,000,000 for the quarter With a growth of 4% year over year and a decline of 5% on a sequential quarterly basis, While the new product launches momentum continued through the quarter, we faced incremental competition and led pricing erosion in certain base portfolio products. Throughout the end of the quarter, we also witnessed signs of COVID driven slowdown in demand levels, especially at the retail and hospital level impacting resourcing. We launched 5 new products during the quarter, with support ring tablets, synacal set, with succiniculin injection And relaunch OPC for multi beam tablets in the U. S. And after an icing injection in Canada market. Overall, During the 9 months in current fiscal, we have already launched 22 products, including 1 re launch. As we continue to maintain the launch momentum for the rest of the year, resulting in around 30 launches for the fiscal, We remain focused on ramping up of the market share across key recent launches. Our Europe business recorded sales of EUR 47,000,000 with strong year to year growth of 20% And sequential quarter growth of 9%. The growth was driven by new product launches seen across the markets. During the quarter, we launched 3 new products in Germany and 1 product each in UK, Italy, France and Spain. Our Emerging Markets business recorded sales of INR 962 crores with a year on year growth of 5% And sequential quarter growth of 11%. The year on year growth adjusted for the ForEx rate impact has been also in double digit. Within the emerging market segment, the Russia business grew by 4% on a year to year basis and 17% on a quarter to quarter basis The market demand has been gradually improving after COVID-nineteen has become. We also saw Similar improvement trends in our CIS market. Our business in China also continued to perform well in the quarter. During the quarter, we launched 27 new products at the cross sell allergy markets. We also completed the acquisition of select anti allergy brands from Denmark to Russia and CICE Markets. Our India business recorded a sale of INR 9.59 crores with a year over year growth of 26% And a growth of 5%. The strong growth in the quarter was supported by gradual improvement in the market demands. The brands acquired from Workout have also performed well. We are progressively adopting digital platform To improve connect with the various stakeholders, efficient community, patient and channel partners to Spend access and leverage demand platforms. During the quarter, we launched several new products in the India market. As per the October report of December 2020, we have been ranked number 9 for the month of December and 11 on on an MQT and MAT basis. Our PCI business recorded sales of $95,000,000 With the year on year decline of 2% and sequential quarter decline of 17%, as alluded to you in the last quarter, Part of the high growth in the first half of the financial year was driven by higher API perfumes inventory level encouraged by our customers in response to the COVID related This part of demand has largely been normalized. At strategic level, we continue to believe that our PSI business is well positioned to benefit from evolving structural shifts in the industry as we continue to invest into new product development and cost reduction initiatives. On the R and D front, we continue to strengthen our pipeline of products across the market with focused R and D investments to our value accretive assets. During this quarter, we filed 57 formulation products across global markets, including 2 AMDS in the United States. As of December 31, 2020, we have 89 community filing pending for approval in the U. S. FDA, which include 87 ANDAs and 2 505(2) NDAs. We also filed 45 drug master files globally, including 5 filings made in the U. S. We are also progressing with Phase III trials for ituximab and working on the next wave of biosimilar products, which are different stage of development. We remain committed to strengthen our product cycle in gross markets as one of the key levers for driving our future growth. As the uncertainty surrounding COVID progressively recedes, we remain focused on our key strategic priorities of building sustainable growth stories and growth for various businesses, including inorganic move and strengthening the pipeline to enable long term growth. 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. You. Ladies and gentlemen, we will wait for a moment while the question 2 assembles. A reminder to the participants, The first question is from the line of From Santi Patel Investment Advisors. Please go ahead. You have light on capacity utilization in Spectral various verticals. And question number 2, this impairment loss, how it is determined? And Will it be reversed in future if situation changes? Please throw some light on that. Yes. So we had the 3rd event of the launch of Novalind Viteva, And we are working in accordance to the good accounting practices. This is a truly new base event, so for that. We are still planning to launch these products And I don't there is no plans to invest, but I hope and believe that we will launch this product and make money from them. Mr. Patel, does that answer your question? Capacity utilization, what is the capacity utilization in respect of the various verticals? The capacity realization? Yes, that is correct. We have enough capacity for the verticals. I'm not sure I understand the question. Capacity utilization means suppose we can produce 1,000 units, today we are producing only 900, so 90%. So that way, what is the installed capacity and how much we are producing the ratio? I got it. And I'm saying again, we have enough capacity for all the diversified. The only places in which we need additional Fascetti is in the injectable arena and primarily for the years of 2022, 2023 FY 2024 As well as the biologics. We have enough of the growth in the oral side. Okay. Thank you. Thank you. Thank you. The next question is from the line of Rashmi Sanjayti from Intrad Research. Please go ahead. Yes, thanks for the opportunity. If you can highlight what kind of Growth, we are seeing in India Business Ex Workhard Integration. We are now selecting the growth. Amit, you want to ask Amit? Yes, Rashmi, thanks for the question. Excluding Workhorse portfolio, our base business grew at about 8% during the quarter. Okay. And sir, for the 9 months? For the 9 months also the business grew in single digits. Single digits. Okay, sir. And sir, related to the vocab integration expenses in this quarter, Is it going to continue in the subsequent quarter or this is one off and this will be only in this quarter? And whether if you can quantify how much that additional cost has come? Yes. So We have now successfully integrated the Work Hard portfolio into our business. And what we are now what our C and L reflects Are the normal or ongoing expenses? So there are no one off expenses pertaining to the Rock Hard Business in our P and L this quarter. Okay. But that integration expenses, will it continue in the subsequent quarter or it is already over by 3rd quarter? So Rashmi, this integration expenses, so there is nothing integration expenses. It is a sales force like we have got from this business. So that is now part and parcel of our business, so that will continue. So it is on account of incremental manpower cost, S and M cost, The plant which came from Bokard, so those expenses on a year on year basis that's the reason we have mentioned. On a sequential quarter basis that is not the reason. It was there in Q2 also, it is there in Q3 also. Okay, sir. Got it. And sir, finally on the U. S. Business, are we going to maintain our 30 product launches guidance in U. S. For this entire year, we have also launched around 22 products. Yes. Okay. And finally, last on the pricing on the base portfolio. Are we seeing a huge price erosion in double digit sort of or it is a mid single digit price erosion? And with the traction in launches, will it Go down or it could remain at the same level? So it's not huge. And of course, it's the first from product to product, but it's more than used to be in the other quarters for us. And I believe that the business will continue to well also in the future. Okay, sir. Thank you and all the best. Thank you. The next question is from the line of Damayanti Karai Hi, thank you for the opportunity. Continuing on the U. S. Business, While we are seeing a healthy number of launches, but on the filing side, I believe it's been bit Muted for last few quarters and we are also having around 87 pending ANDAs. And in the past, you already expressed Your goal about increasing your U. S. Sales by 50% in next 3 years. So how do you see pickup happening on the And on filing front, and second question on the U. S. Business is any update on Vascepa and remodeling generic launches? So on the filing, I think you're going to see much more filings next quarter. It's in line of what we discussed in previous meetings. So we are in the same place, just in terms of distribution between the quarters We're always happy in Q4. As for RECEPTRA, we are preparing for the launch of the product. There are no delay in there will be some time away, Dominik. It will take some time for us. Okay. And my second question is on the impairment part. So for acquiring 8 Andas from Teva, we paid around 350 And if I'm correct, we have already taken impairment of around 250,000,000 to 260,000,000 due to change in market conditions. So do you see like the remaining asset value can also like be impaired if We see further deterioration in the market conditions. We are not expecting any additional developments. Sorry, I didn't get that. We are not expecting additional impairments. Okay. And my final question, how should we look at API business growth Picking up from here, obviously, 1H was very strong, but as you said, it's normalized now. So how should we look at that part of business? We are going to grow this business on both the external sales as well, that's much more important for us is the deck integration. So we are working on both and we are going to see growth in the API in the future. Okay, sure. Thank you. Thank you. The next question is from the line of Kunal Damesha from MK Global. Please go ahead. Hi, thanks for taking my question. So the first question is on the other expenses. So I think in the opening remarks, our CFO said that there was some one time expense that was included. So can you throw some light on what was the nature of the expense and can you quantify? Yes. Thank you for the question, Prahal. One off expenses that I referred to are primarily 2. 1 is COVID related fit expenses have been at the As you know for the last few quarters since COVID started and we are not seeing any moderation in the rates yet. It's a very marginal reduction. And we do think as situation normalizes and COVID comes under control over the next few quarters, this is going to reverse. So that's one reason I mentioned as one off. And secondly, we also have some one off mitigation expenses that we have recognized during the quarter, which are non recurring in nature. Okay. So if I see the quarter on quarter last quarter, our SG and A expense excluding D and A was around INR 983 crores And this quarter, it is somewhere around INR 11.20 crores. So can we attribute the entire increase to that? Because we have said that Vocadre integration costs were already there in quarter 2. So the entire thing is related to and the freight cost would also be there in quarter 2, right? So then the entire difference is coming from the one time litigation cost? No, that's not right, Kwan. Let me give you the shape of the increase. So as I said in my remarks earlier, The largest increase is driven by investment behind sales and marketing in the branded markets. In markets like India and Russia, we have seen the market growth It's showing some gradual signs of pickup and we want to make sure that we invest ahead of the curve. So we have started in a cautious manner investing behind our brands in these markets. The second thing that we are investing behind is our digital capabilities. We have a very ambitious program in place where we want to digitize our core, our quality systems, our manufacturing plants, the way we manage our the entire process of product selection to launch And also we are digitalizing our front end, the way we go to market, the way we engage with the doctor. So I would say that investments Behind brands and capabilities is a large part of this increase. And the rest, as I said, is some bit of freight. In this quarter, we have seen higher freight costs compared to the previous one. To some extent, it was also because of a higher A2C shipment, partly COVID related, but also partially the mix between air and sea shipments. Okay. So do you think that this investment in the brands and sales and marketing will continue for like next 3, 4 quarters Before it kind of normalize or how should we look at it? Like is this the new normal of SG and A like INR 1100 crores? See, we do as you know, Kunal, we don't give any forward looking guidance. So at the same time, I would like to say that the investment in sales and marketing, We do expect it will continue, but I must also point out that we evaluate return on investment on a continuous basis. And if you are finding sales growth being driven by the investment, then we continue. Otherwise, we also try to clear it down. So that's one point I would make. And obviously, the COVID related expenses will gradually normalize. Okay, okay. Thank you for that. And the second question is more of a housekeeping question. So I think we took 6,500,000 of impairment charge for NuvaRing in quarter 3 FY 2020 and we took another 40,000,000, 45,000,000 this quarter. So that's to around 200,000,000. But the purchase price allocation that we did for this product was around RMB 185 1,000,000,000. So I'm not able to What am I missing here? Like did we capitalize some of the R and D expense that we did on the product? Yes, that's a good question, Prahal. The difference is because of the interest that has been capitalized in line with the accounting standards. Okay, okay, okay. Yes. Thank you. Thank you for taking the question. Thank you. The next question is from the line of Nitya Balasubramanian from Bernstein. Please go ahead. Yes, thank you. So my question is a follow-up on the SG and A expenses. So in the last quarter, at least in branded markets like India, China, Russia, kind of savings you probably realized in Q1 and Q2, most of the costs are likely to come back. Is that also partially the reason why it's gone up? And should we now assume that there are no longer any Lockdown related savings in the basin more? I think to a large extent, I would say it is getting normalized That's true, Nikesh. I would not say we are back to pre COVID levels, but yes, it is getting normalized. So that's a fair statement. So can I take that to mean it's likely to inch a little higher because it's not fully back? Yes, it will gradually pick up. But as I said earlier, we've maintained a very tight control on our investments and we link it to sales growth. So it is linked to ultimately these investments are linked to the growth that we can deliver. But yes, you can expect that gradually we will go back to pre COVID levels. Okay, understood. Thank you. The second question was on some of the material products that you have filed in the U. S. Or are likely to file. So if you can give us an update on where you are on NuvaRing, Copaxone, I think you mentioned you refiled, do you have a CAD date, if you can update us on those two products? Yes, I'll do that. So on overall, we continue we submitted the response to the CRM in December. And now the ball is back for the court of the U. S. NDA. So we will wait for the response from the FDA And according to the prepared for the launch, as for COPAXONE, we received the CRL and we are now addressing it. So this is the status of these 2 assets. Sorry, Mr. Sridhar, I hope I got that right. You have you've got received another CRL on And you are preparing a response. Did I hear that right? Yes, correct. Any time line on when you're likely to recover? We are still testing, but I believe it will be within the next few months. Thank you. Thank you. The next question is from the line of Vishal Manchanda from Nirmalbank Institutional Equities. Please go ahead. Thanks for the opportunity. On the domestic side, is there a seasonal element to the book It is there is no significant seasonal element, I would say. As I said earlier, Warkhard portfolio is performing well. It is exceeding internal expectations and we believe that we will maintain growth at Similar levels for this portfolio. Okay. And second one on the scripiprazine. So just wanted to understand whether this could involve marketing and you would need to distribute it in the private market or would this be Same to the government and whether you would also be allowed to sell in markets outside India? So we are planning to go to both the government as well as the private markets. Of course, in accordance to the guidance that will come from the Indian government about priorities and how do they see that. So this is Still in discussion or will be in discussion also in the future. And what was the second part of the question, sorry? Will you also be allowed to sell it outside India, the remaining market? Yes. So we are discussing with RDF options to increase the collaboration also to other markets. Okay. Thank you. That's all for me, sir. Thank you. The next question is from the line of Neha Manpuria from JPMorgan. Please go ahead. Thank you for taking my question. If I heard the number correctly, you said that you. Excluding Workhard, our India business is growing about 8% in the quarter, which would imply that Workhard revenues are pretty much back to their peak Sales level, is that correct? And if that is the case, how should we look at momentum from work hard from here? What will drive incremental growth what you're indicating, in line growth for Workhorse from here? I believe that the workout products will continue to grow from here as well. And what will drive that growth, Ira, since most of the low hanging fruit is already there in the numbers? I think that it was primarily our ability to invest behind this product and to full stop the activities that these products demanded. I think this is the both the sales synergies well as the cost synergies with the anticipated to have and if we block in well so far. Okay, understood. Okay. I'm not sure if I caught this in your opening remarks, but our working capital seems to have increased in the quarter, both receivable and inventory. Could you indicate if there was anything specific here that you'd like to point out? Yes, Neha. So on receivables, approximately the increase is 100 crores. I would say roughly Around 1 third or slightly higher than that is because of lower discounting of receivables in the U. S. And that's because we are no longer finding it economical because of the drop in interest rates in India. So that's the fundamental reason. The second reason is an increase because of normal sales growth that we see. And finally, the milestone payment that we had received from Origin is another driver. But overall, I would say the receivables increase is Due to the underlying business drivers, on inventory, again part of it is because of sales growth And the rest of it is a planned increase. We want to make sure that our safety stock levels are adequate And there is absolutely no disruption as we enter Q4. So these are the reasons for the increase in working capital. I hope I've answered the question. Understood. Okay, fair enough. Just one other clarification on the U. S. Business, the Tires erosion that we saw quarter on quarter, Was that related to any specific product and or was it across assets and across the portfolio and that could Probably continue. It's touched more than 1 product, So it's not specific. It's like the normal course of business, but it's not the entire portfolio. So Like always in United States, when competition is coming, we need to react to it if we want to defend the service, what happens in this case as well. Understood. Thank you. Thank you. The next question is from the line Kunal Mehta from Valium Capital, please go ahead. So thank you very much for the opportunity. So my first question was on Newbury Inc. So, I just wanted to understand the rationale behind the write down of the entire product because I think it's still a viable product and of course, from an Onyx perspective, it is when you consider the 5 year period, it's practically neutral because it just accelerates the amortization. But When you understand the rationale, we are writing down this whole product. Yes. No, the rationale is we have a triggering With the launch of Tevaan, so change of course the model around this product. And as we address the CRL only now And depends, of course, on the time that we will obtain approval, we in accordance with the accounting standards, we have to depreciate this asset. So but yes, you are right. We are still committed to this product. Hopefully, the FDA will afford the product Understood, sir. So the second question I had, I wanted to understand regarding the emerging markets. So I'm sure in the opening remarks you mentioned that all of the filings which we have done this year, especially in this quarter also, most of these are dedicated to the emerging markets, Ex U. S. I would say ex U. S. Markets including Europe and Russia CIS and the other emerging markets, also smaller ones. Just wanted to understand why the of course, there is a lot of understanding available to understand the U. S. Portfolio, Nishant. But On the emerging market side, could you please give us understanding of the new product launches, which we have jotted down, which we have targeted over the next 2, 3 years? I mean, any sense could you give us on, Let's say if you're targeting these markets to grow by let's say maybe 15% over the longer 2, 3 years perspective, Then any target whereby what would be the contribution of the new product launches for these markets? So we are not giving targets, but I'm expecting Especially on the institutional and hospital, the this quarter, we significantly contribute to the growth in this area. As you recall, when we discuss our strategy, we are taking our global products portfolio and try to find as many markets In order to get much more dollars for much more dollar sales for the investment in R and D, and that's what we are doing. So you are going to see more and more filings in the rest of the markets. And Some of them and most of the development that we are doing now, we are doing globally and not necessarily for a specific market. So it's in line with the strategy that we have discussed. And let's just say it's the 4th of the or the starting of the 4th of this execution. We are going to find more and more. Understood. Just a last final question from my answer. I just wanted to understand The strategy which we have on the injectable side, if I could you please give us a number of regarding the from the outstanding portfolio of outstanding filings in the U. S. ANDAs, How many are on the injectables and if you could break it down between complex and I would say rather simple ones on the injectable side? And Of course, I was looking at you've mentioned in your 20 F that from the U. S. Business, roughly 1 fourth comes from the ejectable portfolio. I'm looking at talking about FY Financial 2020. So any perspective on how we want to take this business Because I think considering the fact that I think majority of the I mean a good portion of the off patent products are now in this portion of the market. So for the next 5 years, so any perspective on how we want to take this business ahead? Yes, sir. I will reject Yes, of course. I will inject the word our Global Products and we want to develop and most of our investment is In that area is for global products including the U. S, the impact on the U. S. Is that for low and low injectable products will be filed in the U. S. So proportionally, the injectables will be higher than they used to be in the past. So if you wish, yes, complex and ingestibles will grow and the simple loss in the U. S. Okay. So if I have to let me say that from the 25% current contribution over the next 3, 4 years, this contribution We'll move we'll only move upwards in terms of the overall portfolio assuming that's something you want to The weight of the injectables will be bigger in the future. Got it, sir. Thank you. Thank you very much. All the best for the future. Thank you. The next question is from the line of G. Vivek from GS Investment. Please go ahead. Yes. Is my understanding correct that the tailwind our pharma sector was having due to COVID It's now weakening and are we back to the time of price erosion getting on very severely Instead of the single digit price erosion due to consolidation we faced? You're talking about the United States? Yes, U. S. And rest of the entire world market basically the tailwind due to COVID for pharma sector in India were responsible for very good performance in Q1, Q2 And that is now weakening. Yes. So we are I'm guessing so we are in depends, of course, on the market, But we are not yet in the pre COVID level or the pre COVID behavior and are still impacts of COVID in certain areas. For example, in the U. S, we do see still certain products are affected by the ability of people to meet physicians And stuff like that. We do see that these products are softer than they used to be. In terms of price erosion in the U. S, it's primarily Related to competition, so when competition is coming, this is what is causing the price of holding so much a COVID impact. The case of India, we absolutely see a pickup as the Q3 was a quarter in which By and large, the activities of India came that almost to a normal day. We are not there yet, but we are almost there. Is the similar situation prevailing for injectables also or is it mostly for oral solids? Both injectable and oral solids, it's not related to COVID, it's related to competition that is coming, it's in both segments in the case of the United States. The good part for our company was all our 5 plants were FDA approved and maybe after some gap also. And now FDA inspection have again began in India and any FDA inspection due for any of our plants in India? We did not get any requirements from the U. S. FDA yet. And in general, it's a good news that the US FDA is starting inspection. So it's a great new inspection. Thank you. The next question is from the line of Nitin Agarwal from DAM Capital. Please go ahead. Hi, thanks for taking my question. It is on the U. S. Business. During the year, we've launched, as you mentioned, 24 products so far, but there's not been much pickup in our Aporti sales run rate number. So what will you and your assessment did really take to meaningfully move this number from this $240,000,000 to $44,000,000 that we've been sort of stuck around the last couple of quarters? And Sohve, I could not hear the question. Can you repeat it please, Sohve? So my question was, we've had 24 new launches during the year on the U. S, but our run rate still is sort of Continues to be below sub to around $240,000,000 per quarter run rate. So in your assessment, what will it take for us to really break through To meaningfully scale up on these levels, given the fact that I mean number of launches clearly has not been a hindrance far, we've done fairly large number of launches even this year. So, as you know, the number of the launches and also The type of products that we are launching, it's a combination of first of all, I believe that the portfolio moving forward is attractive And it should create a growth as these the products that hopefully we are launching Should give us the growth we are looking for. So it's not just the quantity, but it's also what you call the quality, the Size of the product that's going to be launched. And some of the products coming up are interesting. Okay. And secondly, on the gross margin, we've had a fairly sharp drop in the gross margin in the generic business this quarter, if you adjust for the licensing income. Now how should we read this? I mean, is this the new normal to go with given the fact that EMEA, the export incentives are no longer there? But how should we look at and how should we sort of model in the generic gross margins now going forward, generic business gross margins? Yes, like we shared in the past, we are not managing the gross margin per se. We are actually managing the EBITDA and we are maintaining that we I was staying and sticking to the 25, 25 that we shared in the past. And we are already in this neighborhood and planning to stay in this neighborhood Maybe even more for a while. Gross margin is a matter of mix of activities. So in the and for example, we have a great product that will give us 50% gross margins and it will be profitable with the right EBITDA, we will take it. So we are not managing the percentage. We are managing the nominal gross margins. And in general, what we said and we are still there that we will stay around the neighborhood of the gross margin that we were in the past. So But we are not managing it. We will continue to take businesses if they are profitable even if they will be below this number that we have now. Okay. Thank you very much. Thank you. The next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead. Thank you and good evening everyone. So this is an important launch which is Atapa. So let me ask a question on this. I'm not sure how much you can talk. But would it be like your regular high value launch? Or would it volume constraint like the first entrant with the lower margins and it would improve as we go along. So any thoughts would be very helpful. Yes, Samir, I cannot tell you that. It's absolutely going to be an important task force. Okay. That's what I can say, but I'm not going to discuss quantities or anything like that for more these reasons. Okay. Sir, can you confirm that this would be a regular high value launch for you? This should be a high value launch for us, yes. Okay, great. Thank you. So second question on SORTNIQ5. Just if you can tell us what's your sourcing plan for the vaccine? And second is, is there any change to your earlier launch time lines and 100,000,000 volume target? That would be great. So the 100 is now 125, this is one update and we are discussing more countries. We are now rolling the rolling up actually, we initiated already Phase 3 in the 1600. And by March, we hope we can submit to the CGI the MHPC authorization application. And if we will get it, we can launch in March. Okay. And what about the sourcing plan? I mean, would you be taking from your partner RDIS or would you also be doing some manufacturing? So a little bit from Russia and most of it from India with 2 partners. Okay, got it. Very helpful. The other question is on the origin outsourcing of AUR102. This is pre Phase 1 sort Out licensing to Exelixis. So it's a very early stage out licensing thing. So what's the thought process behind this? You would have taken it to Phase II or even early Phase III and then put out license. Yes. So we and Prologim develop Over the years, very interesting pipelines. Some of them we are planning to continue to develop to later stage. Some of them were planning to monetize in early stage in order to allow Origin could be such sustained in terms of risk reward management. So I think that Polygen has a very, very interesting pipeline going forward. So those that we want to keep and continue to invest a deal. Beyond that, we will not monetize it. Never expect we'll do it later. Okay. And one final one, if I can. Parag, if I'm not wrong, you mentioned that the EBITDA margin sort of internal aspiration is 25%. And if so, if you did say that, and you are very close to that already. So what's the outlook for margins and what are levers for that? Thank you. Yes, so as I said, our aspiration indeed is to deliver 25% EBITDA on a sustainable basis. And while we are in the neighborhood of 25%, we are not yet able to consistently deliver 25% and we have a number of levers to get there. I think the biggest lever obviously is top line growth and second is productivity that we are driving very hard across the value chain. I mean, I can talk about it in detail. We drive product reformulation, the chemistry, how we can run machines more efficiently, how to improve the yield, finding alternate vendors for our materials and so on, and also in sales and marketing and so on. So productivity is a big driver and we want to make it a habit. But I must point out that as we drive productivity, we also need to invest some of it back into the business behind our brands and behind capabilities. Digital capabilities, I spoke earlier. So it's very important that we drive the levers for that can potentially improve the margin, but we also invest brand the business so that we can deliver sustainable growth in the future. So I would say that we are in the neighborhood of 25% EBITDA escalation and I think you can expect that in the next few quarters, We should be in that range. Okay, great. Thank you very much. Very helpful. Thank you. The next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead. Yes, thanks for the opportunity. Just to follow-up on this, clearly mentioned 25% over a few quarters on a sustainable basis. But if I get my math right, particularly this quarter, if you strip the licensing income, Then you are around 21%. And you mentioned that there are some structural cost you. Upgradation which would happen or will continue over few quarters. So I'm just trying to get these two together that Currently, we are at 21%. Last two quarters were at 25%. How I mean, there's a 400 basis gap here actually. We are not near 20 So if you could explain that. Or you want to say that the cost is truly one off here, so that would be helpful. Thank you. No, that's not right, but the cost is entirely one off. Let me clarify that first of all, the impact of the origin milestone payment Around 1%. We have delivered EBITDA margin of 24% during the quarter. And even if our EBITDA margin is Around 23% excluding the milestone payment, it is within the normal range. I must also say that We do drive out licensing in a number of our businesses like proprietary products and Origin and Biologics business fairly regularly. So I'm not sure it is fair to exclude or include a milestone payment. As I said earlier, we are driving productivity and we are also investing behind the business. We are right now in the neighborhood of 25% margin And we will continue to drive that as our long term aspiration. Okay. And can you confirm like the increase in Fences are recurring apart from the small one off you mentioned and you can quantify that one off please. I don't think I can quantify the one offs. In terms of the increase in cost, as I said, it is an investment behind Our brands, we do expect it to continue, but it is also linked to growth. So we have a process to manage return on investment And therefore, there's link to growth. So in summary, I think this level of investment we expect to continue, but it is directly linked to the sales growth that we can deliver. Perfect. That's very helpful. Secondly, sir, on China, so I think with COVID, everything is You're muted, but what is the ground level action in terms of the filing momentum, how it has been in the last 9 months And is it started to pick up and when do we see the next round of approvals for us? So China is doing very well for us. We are also growing in China despite COVID. And we already filed 15 products. And out of a list of about 100 products in the pipeline that we shared before. So we are very much on track with in the planes of China. Sorry, you mentioned 16 products filed and growing double digit. Did I hear that right, sir? What I said is 15% and I did not say anything about the digit. Okay, okay. But we are growing in China despite COVID? We are growing in China and despite COVID even nice there. And we already Certainly, 15 callbacks and so forth in the call that we already have in the market. Perfect. That is very helpful. Thank you. And sir, on the API, PSAI business that we have, so clearly the first two quarters very heavy, you mentioned stocking, Supply disruption, so how do we see the outlook going forward given that in the last call we mentioned that It's strategically important to us and we want to invest in this business. We will grow the our API business, it will grow, Maybe not quarter on quarter, but it will grow. It will grow and it's very important for us and we are going to increase the level of back integration of that kind. And it has 2 parts, if I'm not wrong, the API and the pharma services. So and then you carved out origin out of it. So I just wanted to understand the growth trajectory for each of the business. Both will grow. We are not giving guidance, but both will grow. Okay, understood. And lastly, sir, on pegfil gas stim, is there any update in terms of where we are in the overall approval scheme? Yes, Pradak. So we are so that the program is run by the previous day of the product. We haven't heard anything about approval, but we expect in FY 2022, but we do not have any confirmed date. Okay. Thank you and all the rest. Thank you. Ladies and gentlemen, due to time constraint, we will take that as a last question. I now hand the conference over to Mr. Amit Agarwal for closing comments. Thanks everyone for joining us today for the earnings call. In case of any further queries, please reach out to the Investor Relations team. Thank you.