Dr. Reddy’s Laboratories (DRREDDY) Q1 FY23 Earnings Concall Transcript

Dr. Reddy’s Laboratories (NSE:DRREDDY) Q1 FY23 Earnings Concall dated Jul. 28, 2022

Corporate Participants:

Amit Agarwal — Head of Investor Relations and Director of Finance, FP&A & IR

Parag Agarwal — Chief Financial Officer and Member of Management Council

Erez Israeli — Chief Executive Officer and Member of the Management Council

Analysts:

Saion Mukherjee — Nomura Securities — Analyst

Anubhav Aggarwal — Credit Suisse — Analyst

Damayanti Kerai — HSBC, — Analyst

Prakash Agarwal — Axis Capital — Analyst

Neha Manpuria — BofA Securities — Analyst

Unidentified Participant — — Analyst

Sameer Baisiwala — Morgan Stanley — Analyst

Surya Narayan Patra — PhillipCapital — Analyst

Tarang Agarwal — Old Bridge Capital — Analyst

Kunal Dhamesha — Emkay Global — Analyst

Dash Jawiri — Crown Capital. — Analyst

Madhav Marda — FIS International. — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Dr. Reddy’s Q1 FY ’23 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Agarwal. Thank you, and over to you, sir.

Amit Agarwal — Head of Investor Relations and Director of Finance, FP&A & IR

Very good morning, and good evening to all of you, and thank you for joining us today for the Dr. Reddy’s earnings conference call for the quarter ended June 30, 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 the playback and transcripts will be made available on our website tool. 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 operative comprising 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 the authorities and cannot be rebroadcasted or attributed in press or media outlets without the company’s expressed return concern. Before I proceed with the call, I would like to remind everyone that the safe harbor contained in today’s press release also pertains to this conference call.

Now I hand over the call to Mr. Parag Agarwal. Over to you, sir.

Parag Agarwal — Chief Financial Officer and Member of Management Council

Thank you, Amit, and greetings to everyone. I will take you through our financial performance for the quarter. For this section, all the amounts are translated into U.S. dollars at a convenient translation rate of INR79.2 which is the rate as of June 30, 2022. In this quarter, we have a strong growth in our profit, supported by the settlement syndrome and brand divestment while we were impacted by additional competition in key products in U.S., cost inflationary pressure, normalization of stock holding in Russia and slowdown in the pharma market growth in India. Despite these challenges and — few one-offs, we have done reasonably well and are confident of further improving our performance from here on.

Consolidated revenue for the quarter stood at INR5,215 crores, that is USD660 million and grew by 6% year-on-year basis and declined by 4% on a sequential quarter basis. Sales growth has been impacted due to higher base effect as Q1 FY ’22 included sales from COVID products and Q4 FY ’22 had higher sales in Russia driven by stocking up, which is normalized in the current quarter. This impact was partially offset with the brand divestment income in the current quarter and the new product launches across our businesses while the price erosion has been in line with the trend business in the last few quarters. Consolidated gross profit margin for this quarter has been at 49.9%, a decline of 230 basis points over previous year and 300 basis points sequentially. Gross margin for the global generics and PSAI businesses were at 55% and 15.7%, respectively, for the quarter.

While the current quarter gross margin was supported by brand divestment income, it was impacted due to several one-offs, adjusted for which we are within the normal range. Let me explain these in a bit more detail. Firstly, our gross margins were impacted due to significant movements in the ForEx rate during the quarter, which we believe to normalize going forward. Secondly, the gross margins were also impacted due to increase in the commodity prices and adverse leverage on manufacturing overhead due to lower sales pace.

We expect this to normalize from next quarter with an increase in our scale. Thirdly, in this quarter, we have launched –, which is currently procured externally, and has a lower gross margin. We plan to transition this to in-house manufacturing after the expiry of presence, which should lead to an improvement in margin. With the above measures planned to be undertaking, normalization of the one-off and launch of a few meaningful products, we believe that next quarter onwards, our gross margins will improve and will be within the normal range. The SG&A expense for the quarter is between INR1,549 crores that is USD196 million, an increase of 3% year-on-year and a decrease of 1% quarter-on-quarter. As a percentage of sales, our SG&A has been at 29.7%, which is lower by 90 basis points year-on-year, however, higher by 90 basis points sequentially. The R&D spend for the quarter is INR433 crores, that is USD55 million and is at 8.3% of sales. We continue to drive productivity across our businesses while also making investments to strengthen pipeline and capability development in marketing, digitalization and people, including for —

Horizon two businesses. The net finance income for the quarter is INR235 crores, that is USD30 million, supported by a gain on account of strengthening of ruble rate during the quarter. While we had forest related benefit in finance income, which has been partially offset due to ForEx impact and costs impacting our gross margin and SG&A. The EBITDA for the quarter is INR1,779 crores, that is USD225 million, and the EBITDA margin is 32.1%. Adjusted for the one-off of settlement income and divestments and those related to gross margin, we are within our normal range. Our profit before tax stood at INR1,466 crores, that is USD185 million which is a growth of 97% year-on-year and a growth of 49% quarter-on-quarter. Effective taxes for the quarter has been at 19.0% primarily on account of recognition of previously unrecognized — assets on operating tax losses pertaining to our —

We expect our normal ETR to be in the range of 24% to 26%. Profit after tax for the quarter stood at INR1,188 that is USD150 million. Reported EPS for the quarter is INR71.40. Operating working capital increased by INR790 crores, which is USD100 million, again that on March 31, 2022. The increase was primarily driven by an increase in receivables in North America, which should normalize during next quarter. Our capital investment during the quarter stood at INR371 crores, which is USD42 million. The free cash flow during this quarter was a net outflow of INR232 crores, it is USD29 million after payment of INR509 crores for the acquisition of Sigma brand in India and the injectable portfolio from — in U.S. Consequently, we now have a net cash surplus of INR1,275 crores, that is USD161 million as of June 30, 2022.

Foreign currency cash flow hedges in the form of derivative for the U.S. dollar are approximately USD366 million, largely hedged around the range of INR77.6 to INR80.4 to the dollar, ruble 8,155 million at the rate of INR0.90 or — at the rate of INR55.8 to $1 billion and — at the rate of INR4.82 to South African rand maturing in the next 12 months. With this, I now request Erez to take you through the key business highlights.

Erez Israeli — Chief Executive Officer and Member of the Management Council

Thank you, Parag. Good morning and good evening to everyone. Our performance of the current quarter reflects the strength of our diversified business model. We have been able to mitigate several challenges faced during the quarter by monetizing various opportunities that led to highest ever profit as an overall business level. Let me share with you some of the key highlights of the current quarter.

One, settlement of impending litigation for [Suboxone] or $72 million, which further helps strengthening our balance sheet. Completion of U.S. FDA inspection of our new sterile injectable manufacturing facility referred as — leading to subsequent approval of the product from the site. This enable us to commission this plant and renew stream of additional capacities and capability to grow our injectable business. Three, acquisition of cardiovascular brand — in India and the injectable portfolio from Eton Pharma in the United States. The world of Abiraterone tender in China, which will be our second product towards GPO model.

We are progressing well on product pipeline across more molecule generics were similar and effected –. There have been good momentum in the initiative retaining to Horizon two business and sustainability goals laid out during the recently concluded Investor Day. All of this will enable us to continue to deliver on our long-term growth aspirations. Now let me take you through the key business highlights for the current quarter. Please note that all references to the numbers in this section are in respective local currencies. Our North America Generics business recorded sales of $230 million for the quarter which has a decline of 2% year-over-year and 13% on a sequential basis. This was largely attributed to the incremental competition in a couple of our key products to — the quarter.

The Q-on-Q decline was also driven by high base for first-to-files injectable with normalized volumes and pricing adjustments due to the impending entry of competition on day one –. Bearing these products, the price erosion for the base business has been within the normal trends in over the last few quarters. In this quarter, we launched seven new products, some of which should be ramped up in the coming quarters. We expect strong launch momentum to continue during the year. Similar to the last three years, we believe that we can continue to grow this business on the strength of new product launches, while there will be volatility on a quarter-to-quarter basis due to the fundamental nature of generic business model.

We are preparing for a volume limited launch of lenalidomide ANDA product in the United States during September 2022. The specific volume limited amount of generic lenalidomide that we are permitted to sell between September 2022 and January 31, 2026, when we are licensed to sell an unlimited quantities of generic lenalidomide are confidential. Our Europe business recorded sales of EUR50 million this quarter with a year-on-year growth of 12%. However, sequential quarter decline of 4%. During the quarter, we launched nine products across various countries within Europe. We expect to continue to pay growth momentum in the rest of FY ’23. Our emerging markets business recorded sales of INR903 crores with a year-on-year decline of 1% and a sequential quarter decline of 25%.

The decline was due to higher base effect as we had COVID product sales in Q1 FY ’22 and ran divestment income in Q4 FY ’22. Further, the increase in stockholding seen in Russia during last quarter due to the conflict has now normalized. However, impacted the current quarter growth — however, impacted the quarter growth. Within the emerging market segment, the Russia business declined by 14% on a year-on-year basis and 16% on a quarter-to-quarter basis in constant currency due to the same reasons.

During the quarter, we launched 25 new products across various countries of the emerging markets. We believe that on an annual basis, we will be able to grow this business in line with the past trends adjusted for the one-offs of COVID sales and rate investment income in previous year. Our India business recorded sales of INR1,334 crores with a year-over-year growth of 26% and sequential growth of 38%. Adjusted for the brand divestment income in the current quarter and the — products held during Q1 F-22, we have grown in a healthy double digits. During the quarter, we launched five new products in the Indian market. As per the — of June 2022, our ranking value in terms — our rent in value terms is at number 10.

We continue to reshape our portfolio in India business with a focus of growing big brands acquisition and partnerships for focused therapy areas while divesting noncore brands. Our PSAI business recorded sales of $91 million with a year-over-year decline and sequential decline of 8%. Adjusted for corporate product sales in Q1 2, the business has grown over the last year. We expect to see improvement in the sales during the balance of the year. We believe that there are several opportunities for growing our core business and leading new avenue costs. We are committed to our long-term strategy and are progressing well towards productivity improvement and making right investment choices to deliver a long-term sustainable growth in line with our strategy unveiled on the Investor Day.

With this, I would like to open the floor for questions and answers.

Questions and Answers:

 

Operator

[Operator Instructions] First question is from the line of Saion Mukherjee from Nomura.

Saion Mukherjee — Nomura Securities — Analyst

Can you just quantify the impact of ForEx across line items. There is income in finance income, but you also mentioned there are certain impacts in COGS. So if you can just quantify the net impact?

Parag Agarwal — Chief Financial Officer and Member of Management Council

Yes. So Saion, the movement of ruble and some of the other currencies has led to an adverse impact on the gross margin, which would be roughly around 150 basis points in that range. And in the finance income, there is the upside that has been recorded, and that’s because of the accounting standards, the — method. So overall, that’s the kind of impact that our P&L has.

Saion Mukherjee — Nomura Securities — Analyst

Okay. The second one on Russia, particularly. So I just missed the constant currency growth, if you can just indicate in Russia and also, are you able to take any more hedges or in Russia or the hedges that you had at the end of fourth quarter, just — you are running with that at the moment? And since the hedge amount is large for this year, what is the kind of realization that you will have on currency? And anything you can guide going forward? How should we model for Russia in terms of the currency rate?

Parag Agarwal — Chief Financial Officer and Member of Management Council

So Saion, let me answer. The first question is on the constant currency sales impact. During the quarter, our Russian business declined by 14% year-on-year in constant currency. And as I — as we had signaled in the last quarter, this includes the normalization of the inventory stocking that we saw at the start of the conflict. Now coming to the second point on ForEx hedging. As you know, ruble has appreciated significantly. From — it used to be at a rate of around INR0.9 to INR1, and it is now ranging anywhere between INR1.3 to INR1.5. We believe this rate may not be sustainable in the long run. And currently, the cost of hedging is extremely high. It’s prohibitively high. So we are currently not hedging. What we are trying to do as a business is to reduce our working capital cycle. And we have had some success in that. So instead of hedging our exposure, we are reducing the cash conversion cycle to minimize the impact on our business.

Erez Israeli — Chief Executive Officer and Member of the Management Council

And Saion, just for me, if you take this normalization of inventory will continue to go in Russia.

Saion Mukherjee — Nomura Securities — Analyst

Okay. Sir, just one more question, if I can ask. On India, you mentioned adjusted for COVID, you had healthy double-digit growth. But if you adjust for the acquisition, can you share the growth number?

Parag Agarwal — Chief Financial Officer and Member of Management Council

Both. So if you take both our science, which is the brand divestments we take out and also the impact of COVID in the base, then we have grown at healthy double digits. If you look at the impact of acquisition, if you take that out, then our growth would be in single digits.

Operator

The next question is from the line of Anubhav Aggarwal from Credit Suisse.

Anubhav Aggarwal — Credit Suisse — Analyst

Question is on the U.S. market. Just when you talk about price erosion, so you talked about a couple of products, is there any element of share stop adjustment on resilient also in this quarter in the U.S. sales?

Erez Israeli — Chief Executive Officer and Member of the Management Council

Again, can you repeat?

Anubhav Aggarwal — Credit Suisse — Analyst

So when you call out — so U.S. sales are down 13% quarter-on-quarter. One is the price erosion or volume patterns Suboxone and — you called out. But on Rituxan, just trying to understand, is there an element of share stop adjustment, they are like, for example, that’s a –, which is just artificial pressing the reported number. And when we start the next quarter, that number we start at a higher base? That’s what I want to try to –.

Erez Israeli — Chief Executive Officer and Member of the Management Council

So like I mentioned in the — in my part, the — Basically, we see the normal adjustment that is related to day 181, the situation, and that’s what impacted us in this quarter.

Amit Agarwal — Head of Investor Relations and Director of Finance, FP&A & IR

Yes. And on the SFA adjustment, there was no such major impact over.

Anubhav Aggarwal — Credit Suisse — Analyst

When you say SFA, what does that mean?

Amit Agarwal — Head of Investor Relations and Director of Finance, FP&A & IR

Sale stock adjustment operation. Okay.

Anubhav Aggarwal — Credit Suisse — Analyst

So you’re not saying that we happen to record high since the reopen in March quarter, and we were surprised with the price erosion. So there is no element. So net-net to $30 million that we’re reporting, let’s say, that becomes an opening base for the second quarter for us.

Erez Israeli — Chief Executive Officer and Member of the Management Council

We are not guiding, but let’s say, we do not see any surprises the way that you described.

Parag Agarwal — Chief Financial Officer and Member of Management Council

Yes. I think the important point, Anubhav, is that the price erosion that we have seen in this quarter in aggregate is in line with the trends that we have seen in the last few quarters, and we are not seeing any sign that is posing. That’s the point I would like to make.

Anubhav Aggarwal — Credit Suisse — Analyst

Okay. Second is in the Russian market. Now we’ve seen a good amount of July as well. Has there been any element of us some market share gains, some visible signs of that happening? Or is it business as usual? Can you give some qualitative — what’s happening in the Asian market business?

Parag Agarwal — Chief Financial Officer and Member of Management Council

The Russian market, Anubhav, we are seeing our operations are normal. — supply normally the flow of money within Russia and from Russia into India is also normal. There are certain companies have shifted their spend from above the line, which is the mass media or TV to below the line, which is state discounting and so on. So there are some shifts in the way spends are made, which are happening in the market. But overall, we are finding that it is business as usual. As you know, in the area of medicine, we are very focused on making sure that patients get our medicines. And right now, I’m happy to say that our operations are normal.

Anubhav Aggarwal — Credit Suisse — Analyst

Sorry, just to add just a clarity on this. So what I meant was, for example, with ruble to INR conversion is much easier than, let’s say, ruble to euro or USD. So is that benefiting you guys or in general, the Indian company to take a higher share in the Russian market? And have you seen any visible signs of that?

Erez Israeli — Chief Executive Officer and Member of the Management Council

In terms of visibility of the reported quarters, we did not have impact as such. We do not see at that moment anyone that actually leaved Russia. All the pharmaceutical company to the best of our knowledge and our visibility, are working in Russia, are operating in Russia. Lastly, that long term, it will change. But right now, that’s what we see. In terms of our business in Russia, it’s favorable, people understand that we took a decision to continue to work in Russia. And indeed, it’s comfortable for us to work and probably it will help us in the future. But as we speak, I think business as usual is the right way to give you the best transparency of what we see on the go.

Operator

The next question is from the line of Damayanti Kerai from HSBC.

Damayanti Kerai — HSBC, — Analyst

My question is on U.S. business. So you have a sizable portfolio of injectable products in the U.S. So can you comment like how pricing erosion in this part of the portfolio stand against the pricing erosion in the broader portfolio, which mainly consists of oral solid? And also, in terms of some of the complex generic launches, which we are anticipating in the future, what are your expectation on the pricing factor? So that’s my first question.

Erez Israeli — Chief Executive Officer and Member of the Management Council

Thank you. So we have on the injectable business in terms of the erosion is similar. So if the number of competitors are outcoming and phasing a handful of customers, the price erosion is the same and also the pattern of the procurement is the same. So we don’t see less a different behavior. The only I think big difference in terms of injectables in which you can work directly with the hospitals as well as to work with the wholesalers. And of course, this is around new more flexibility as it’s related to share and market growth. More and more in our case, we will see a more injectable coming naturally as this is where the — this is where many people will go. I’m not sure I captured the second part of the question, if you can repeat, please?

Damayanti Kerai — HSBC, — Analyst

Yes. So we are working on various complex generic products, maybe of those are injectables and these products might come over next few years. So I was asking in terms of pricing, how do you see these products stand in terms of pricing erosion once they come in market compared to the current portfolio which we have?

Erez Israeli — Chief Executive Officer and Member of the Management Council

So some of the products that we will launch in the future may see limited competition. And these are the products that — some of them we indicated during our Investor Day. Some are in our pipeline that we did not disclose. In general, like I said before, if the multi-ended we will see similar phenomena on prices also for the injectables as well. I don’t think that there will be a significant difference in the behavior of the pattern of the procurement of the hospital versus the retail in that respect.

Damayanti Kerai — HSBC, — Analyst

Sure. And my last question is, can you comment on the trends which you are observing in the commodity prices or logistic costs, etc. Has there been any change compared to what we saw in the previous quarter, like any sign of moderation there?

Erez Israeli — Chief Executive Officer and Member of the Management Council

No signs of competition, but no sign of worsening. We see some of the commodity price still impacting, especially those who have inventory attach as well as shipping costs. Naturally, as the — normally, there is some time that it takes while the oil and some other commodities go down and then, of course, accordingly, normally in a certain period of time from weeks to months, we started to see the impact also on our results. And of course, the real impact we can capture only we sell these products. So likely that any change that will happen to this market, we will see only now cash six months from now, so.

Operator

The next question is from the line of Prakash Agarwal from Axis Capital.

Prakash Agarwal — Axis Capital — Analyst

Question is on gross margins. So I heard Mr. Parag saying about 150 bps on the ruble largely — ruble. But correct me, if I’m wrong, that rupee dollar also had a substantial movement. And you also said that there was a high base last quarter on the species. So that would — that has also come down a bit. So are these not also factors which led to some decline in the gross margins?

Parag Agarwal — Chief Financial Officer and Member of Management Council

So overall, the ForEx impact, I told you was in aggregate, the U.S. dollar rupee impact isn’t significant. So the headline, the important headline is that if you take out the positives and the negatives, both which are nonrecurring, then our gross margins are in the normal range. If you look at our last several quarters, our gross margin fluctuate between 51% to 53%, 54%. And the point I’m making is that our reported gross margin is 49.9%, which has benefited from divestment of brands in India. But there are a number of other one-offs which are not recurring in nature. And if you adjust these as well, in aggregate, our base gross margin is in a normal range. So that’s the headline that I want to — want you to understand.

Erez Israeli — Chief Executive Officer and Member of the Management Council

And I want to add to that. We do not see a change in the pattern of our gross margins going forward as well. So like we discussed in previous calls, the nature of the game in which is impacted for ForEx from inventory from price erosion, etc. We will always be in the range of somewhere between the numbers that I have just mentioned, and this will continue also in the future. So we can reiterate that this is the margins that we feel comfortable on the gross margin, and we reiterate also what we discussed in Investor Day about our commitment for the EBITDA margin as well. So what we see is a consistent, if you wish, performance that is related to that. Probably now we see it more on the lower part of the range, but within the range.

Prakash Agarwal — Axis Capital — Analyst

Okay. And trying to understand this — is the R&D day you had. So we have talked about 25% EBITDA margin. And I understand this is ex REVLIMID, right? So are we on track for fiscal ’23, ’24 in that range, I mean, given that we had a blip in Q1?

Erez Israeli — Chief Executive Officer and Member of the Management Council

So we are consistent of what we discussed in Mumbai. It was only a few weeks ago. The — what we said, I just want to make sure that it’s the same, it’s not necessarily a number that will achieve every quarter in the next many, many years. It will fluctuate. What we are saying is this is the number that on average we are going to get, we feel comfortable with, which will allow us both to invest in the future and also to give the right return for the shareholders. So this is that indeed, in the case of very successful launch of lenalidomide, it could be higher than that. And after that, it can be lower than that. This will continue this kind of fluctuation. On average, we are consistent with what we discussed in Mumbai.

Parag Agarwal — Chief Financial Officer and Member of Management Council

And I must also clarify that — sorry, just to clarify, the aspiration of 25% that we have stated is not including or excluding any particular product. It is the margin in aggregate for our business.

Prakash Agarwal — Axis Capital — Analyst

Okay. Understood. Okay. And just a clarification on REVLIMID is when you say launch, it includes the two exclusivity as well as the other strengths, right?

Erez Israeli — Chief Executive Officer and Member of the Management Council

Correct.

Prakash Agarwal — Axis Capital — Analyst

Sorry, sir?

Erez Israeli — Chief Executive Officer and Member of the Management Council

Yes, yes.

Parag Agarwal — Chief Financial Officer and Member of Management Council

Yes, that’s right.

Erez Israeli — Chief Executive Officer and Member of the Management Council

Correct.

Operator

Our next question is from the line of Neha Manpuria from Bank of America.

Neha Manpuria — BofA Securities — Analyst

A again on the gross margin. If I look at — if I took out the brand divestments in the quarter, we are closer to the 57%, 57.5% margin. From your comments, it seems like the FX will normalize, but there was also an expectation that commodity prices wouldn’t come off. What essentially will lead to normalization of this? Would it be REVLIMID launch which will essentially help improve this margin? Or — I’m just trying to understand what will move us from the existing margins to a normalized range that we’re talking about.

Parag Agarwal — Chief Financial Officer and Member of Management Council

Yes. So no, there will be two, three drivers. One is I wouldn’t single out REVLIMID first of all. I think — I would say that the margins of the new product launches, including REVLIMID, would be a significant driver of an uptick in the gross margins. The second would be, as I pointed out, we have brands like –, where we are — we are forcing them externally, and we are working towards internal sourcing. And Sigma is one example I’ve given you. As part of our productivity initiative, we constantly work on in-housing brands, which will lead to an improvement in our cost base. So that is going to be clearly a setting game, which is part of a larger productivity lever. There are a series of cost improvement programs that we are driving. Looking for alternate vendors, improving plant yields. If you remember on the Investor Day, Sanjay presented our productivity status for each of the three businesses, which is OLG, API and –. And where we were a few years back, where we are now and the further headroom that we have in productivity. So that’s going to be the second significant lever that gives us the confidence that we will maintain our gross margins in the normal range.

Erez Israeli — Chief Executive Officer and Member of the Management Council

And the other is that the EM, India and Russia, because of the normalization that you say, we are going to have more visibility to growth as we discuss on this — some of them were one-off and some normalizations as well as the API that is going as well. So just to make sure, we are very confident, even without –, the gross margin will be there.

Neha Manpuria — BofA Securities — Analyst

That’s very helpful, sir. And second on the PSAI business, I understand the base impact in the previous year because of COVID. But if I were to look at it quarter-on-quarter also, there’s been moderation. So are you seeing some amount of customer destocking or customer inventory being high, which is limiting our ability to scale up that business? And also on the PSAI business, are we able to pass on the cost pressures that we are seeing in the PSAI business to our customers because margins there seem to have deteriorated, too.

Erez Israeli — Chief Executive Officer and Member of the Management Council

So first, after a few quarters in which we saw the decline of the API, which is the one component of the PSAI, this quarter, we see that we are coming back to growth. It’s a very single-digit growth, but we are growing, and we believe that this will continue, and we do see the pickup. And this is primarily being driven by new products, new products and new customers in territories. The second is that is growing for us is the activities that we are capturing under PSAI. We call it API plus in which we are selling — In countries in which we do not have direct access. So we do see a pickup in this business very, very nicely, and it’s actually a very healthy growth. And the third part, which is also growing, although it’s not yet contribute significantly this the CDMO activity on the small molecules. The part that disappeared this quarter from the number is COVID, which was there last time, and this is why it looks like it decline. But overall, if you normalize it, is it is a growing business now.

Neha Manpuria — BofA Securities — Analyst

And on the margin, sir?

Erez Israeli — Chief Executive Officer and Member of the Management Council

Sorry? The margins, the more the API will grow. Accordingly, the margins will go up because it’s a very cost-based type of a business, and it very much depends on that. So the margins will go up.

Operator

Next question is from the line of Balaji Prasad from Barclays.

Unidentified Participant — — Analyst

This is — on for Balaji Prasad. Just wanted to circle back on generic REVLIMID, I guess, could you just provide any further color on expectations here? And also just any further color on key launches in the U.S. this year and next?

Erez Israeli — Chief Executive Officer and Member of the Management Council

So like I mentioned, we are going to have volume limited launch during September 2022. And we will have that kind of permission to do that between September ’22 and January 31, 2026. After that, it will be unlimited. And naturally, we are ready for that and looking forward for that to happen. As from the other launches, we will have 25 plus of other launches in the United States. And overall, very consistent of what we discussed during the discussion of the Investor Day. We are confident that we will continue to grow in the United States on the CAGR basis, with what we call the time to time in which we will have blips ups and blips down as it’s related to the nature of the product when we would have them. So — this quarter is a bit down. Next what I believe will be up. Overall, it’s in the direction that we have discussed in the past.

Operator

Next question is from the line of Sameer Baisiwala from Morgan Stanley.

Sameer Baisiwala — Morgan Stanley — Analyst

I just wanted to make sure on your comment on EBITDA margins for Q1, you did say that if you exclude one-offs, then even EBITDA margin was in the range of what you normally do, which I presume is 23%, 24%.

Parag Agarwal — Chief Financial Officer and Member of Management Council

Yes. So to clarify, our reported EBITDA margin from –. If you take out the impact of Suboxone settlement and the brand divestment, then it’s around 20%. And then I spelled out a few nonrecurring impact — adverse impact for happen the COVID sales in the base and in the gross margin. If you adjust for that, our EBITDA is in the normal range of 21% to 25%. If you look at the last several quarters, our EBITDA margin typically structures in this range. So that’s what I mean by the normal range.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay. Yes. That’s very clear. And the second question is for the sale of brand, what you have recorded INR230 crores through revenue line items. What’s the cost against that? And I guess I’m just trying to say that what’s the EBITDA impact of this number?

Parag Agarwal — Chief Financial Officer and Member of Management Council

The total amount, Sameer, it’s the total proceeds of the divestment and therefore, the entire amount falls to EBITDA.

Operator

The next question is from the line of Surya Patra from Philip Capital.

Surya Narayan Patra — PhillipCapital — Analyst

Yes. The first question is on the…

Operator

Mr. Patra, your voice is not very clear. I request you to use the handset.

Surya Narayan Patra — PhillipCapital — Analyst

Okay. Is it fine, sir?

Operator

Yes.

Surya Narayan Patra — PhillipCapital — Analyst

So the first question was on the REVLIMID. Sir, you mentioned about the right launch of the product starting September. Just wanted to have a sense, what should be the competitive intensity here? And more importantly, what I was trying to understand is the limited volume condition how reserve is that condition on the settlement? Because even the vast launch is also under low single — or mid-single digit kind of volume condition only they would have launched. But the precision trend indicates that they are having double-digit kind of percentage volume currently? So that is just trying to understand how resi is the limited volume conditions for the for the settlement players?

Erez Israeli — Chief Executive Officer and Member of the Management Council

It is rated in a case that we can sell exactly the amount stated in agreement and the volumes and the market share, that — is confidential, like I mentioned, so I cannot discuss that. And actually, it’s a very significant launch for us. As for the intensity of the competition, of course, depends how many players will be there and what will be their volumes as they can supply into the market at that point of time. That’s yet to be seen. We will have to wait and see. We believe that it should be a very good launch for us.

Surya Narayan Patra — PhillipCapital — Analyst

Okay. Because my point was also this — if the volume limit condition is also not –, then there could be a kind of a larger competition. And hence, the price erosion could be larger. So that is the ultimate point that I was trying to understand, sir.

Erez Israeli — Chief Executive Officer and Member of the Management Council

No, I understand the question. Unfortunately, I cannot share the details of the –.

Surya Narayan Patra — PhillipCapital — Analyst

Sir, second question is on the therapeutic revenue mix, what we have said in the 20-F filing. So last year, obviously, the global generic revenue growth, if you consider, it is around 16% kind of a growth that we have seen. But the large part of the growth has come from the — as a segment. So there was a kind of a 74% kind of jump in the segment. Whereas the other segment remain either single digit or at or low double-digit kind of trend. So whether that is a concern area for the growth of the current year, if we ignore the REVLIMID contribution for the time being, then whether that can have a kind of a moderated trend for the current year in general for branded business, let’s say, India, Russia, — market like that?

Erez Israeli — Chief Executive Officer and Member of the Management Council

I do not see a concern.

Surya Narayan Patra — PhillipCapital — Analyst

Okay. So that’s not a concern?

Erez Israeli — Chief Executive Officer and Member of the Management Council

I do not see a concern.

Surya Narayan Patra — PhillipCapital — Analyst

Sure. Just last question, sir. In fact, the origin licensing arrangement to what you had with Olema. So whether that $8 million upfront sale that has been booked in this quarter?

Parag Agarwal — Chief Financial Officer and Member of Management Council

No. No, it has not been booked. It is to be amortized over the contract period, which is over four years.

Surya Narayan Patra — PhillipCapital — Analyst

But that is — okay. Even the upfront amount will also be amortized over the period?

Parag Agarwal — Chief Financial Officer and Member of Management Council

That’s right.

Operator

The next question is from the line of Tarang Agarwal from Old Bridge Capital.

Tarang Agarwal — Old Bridge Capital — Analyst

Just one question, sir. On the M&A strategy, I mean, what we’ve observed is we’ve recycled some of your brands in India. You’ve got — on one side. And you’ve also bought small injectables, a couple of products. So just wanted to get a sense on why — what is the kind of advantage you get by getting rid of those other brands in India? Does it release a decent amount of sales force, which can then be devoted into some other divisions and the purposes behind buying the small injectable space that you have?

Erez Israeli — Chief Executive Officer and Member of the Management Council

Yes. So thank you for the question. The divestment in India, we have a clear strategy in which segment we want to focus on and which segments we don’t and which brands we want to focus on and which brands we don’t. So what we want to see in India. And on top of it, you can get very nice value for the brands that are not in the focus which we like to monetize. We feel that it’s a better alternative for the capital allocation of the company and also for the performance of the company. So likely, what we are — India in which we will sell brands that are not in focus. And we will actually even vibrant like we did this quarter, we treat most and then about these deals. So you’re going to see both. And this will allow us to establish ourselves when we also add both the Horizon one and Horizon two activities in India to bring us to the aspiration of the number. In the case of the United States, we are always trying to find those low competition assets, especially injectables. In order to rate better portfolio for the United States and for the customer at the United States. And if we do not have the means or we did not develop it in the past, we are getting it from others. That’s why the way what we did at the time with Suboxone. That’s what we did with a –. So it’s something that we are doing for many years, and we’ll continue to do so. So our pipeline in the U.S. will continue to be products that we develop ourselves as well as licensing and products that we acquired.

Tarang Agarwal — Old Bridge Capital — Analyst

Okay. And just a follow-up on the India piece, sir. Does it — some kind of — to focus on some other brands and the kind of maybe gross profit or EBITDA that you might have lost by virtue of letting go of these brands?

Erez Israeli — Chief Executive Officer and Member of the Management Council

So absolutely, it is helping us to focus our resources on the brands that we believe. This is part of what focus means. In terms of growth, we believe that on the long term, it will help us to go. And naturally, quarter-on-quarter, we may need to adjust for those sales that we’ll be missing. And we will have to be — of that. But on the year basis, we will grow faster actually by focusing on the area that we believe that we have a better competitive advantage.

Tarang Agarwal — Old Bridge Capital — Analyst

Okay. And the loss in EBITDA or gross profit by virtue of divesting these funds?

Erez Israeli — Chief Executive Officer and Member of the Management Council

We are not losing, you’re actually gaining because if you have the EBITDA that these products would have made versus the tax that you got for it, it’s a better deal for the –.

Operator

Our next question is from the line of Kunal Dhamesha from Macquarie.

Kunal Dhamesha — Emkay Global — Analyst

Just one question. Again on the –, the volume

Parag Agarwal — Chief Financial Officer and Member of Management Council

Kunal, your voice is not clear. Can you repeat?

Erez Israeli — Chief Executive Officer and Member of the Management Council

Can you repeat?

Kunal Dhamesha — Emkay Global — Analyst

So in terms of volume percentage allowed for us for –, is it calculated on annual basis or — your business?

Erez Israeli — Chief Executive Officer and Member of the Management Council

All these details are confidential at this rate.

Operator

The next question is from the line of Bino Pathiparampil from

Unidentified Participant — — Analyst

First, just a clarification. So this INR230 crores of brand sales that you generated, that is part of this INR1,300 crores of India revenue that you have reported, right, correct?

Parag Agarwal — Chief Financial Officer and Member of Management Council

Yes, that’s right.

Unidentified Participant — — Analyst

Second, in the U.S., you mentioned about incremental competition in a couple of products. Did you see incremental entry of a new player in any of the key products? Or is it that the existing players got more aggressive since I’m asking this because you specifically set two products?

Erez Israeli — Chief Executive Officer and Member of the Management Council

Yes. In these two products, Apotex launched competition for both during Q1.

Unidentified Participant — — Analyst

Okay. Do you mind naming them?

Erez Israeli — Chief Executive Officer and Member of the Management Council

I said Apotex, the company.

Unidentified Participant — — Analyst

Yes, yes. Do you mind naming the products?

Erez Israeli — Chief Executive Officer and Member of the Management Council

I said –.

Operator

The next question is from the line of Dash Jawiri from Crown Capital.

Dash Jawiri — Crown Capital. — Analyst

Sir, I just have one question, if I may. Sir, the performance in this quarter, considering all the one-offs that we have, could we take this performance as a base and sustainable quarter run rate? Or could you just give some color on that, that would be very helpful, sir.

Erez Israeli — Chief Executive Officer and Member of the Management Council

Yes. This is — I like to — I like to use the word consistent. So it’s very much consistent, one with the strategy and our investment and consistent also with the performance. With the understanding that we are facing sometimes the situation in the market, sometimes will be in favor and sometimes not. But overall, all the stuff that we discussed, our growth, which will be in the U.S., single digit. Outside of the U.S., double-digit. The EBITDA and the ROC targets that we discussed in the past, we are all — we are still there and very consistent with what we are discussing at us.

Dash Jawiri — Crown Capital. — Analyst

So sir, just to clarifying things. So there are revenue and margins will be along these lines on the –, right? So we would you would see considerably around the same range in this year? And maybe could you just give us some clarity on what would our normal otherwise look in FY ’24 or something, sir?

Erez Israeli — Chief Executive Officer and Member of the Management Council

Again, we are not giving guidance, but I’m repeating what I said before. We said that our — we are continuing to grow on double digit outside of the U.S., single digit in the U.S., and we are aiming for about 25%, 25% on EBITDA and ROCE. This is still there. This is still valid. We cannot guide third quarter or very specific year. This can be fluctuated, but we will be in the neighborhood of those numbers sometimes up and sometimes down. But we very much believe that we are in this area. And not just definitely we believe that it will even allow us to invest well into the future. So we can be consistent for many years.

Operator

Thank you. Our next question is from the line of Prakash Agarwal from Axis Capital.

Prakash Agarwal — Axis Capital — Analyst

Just on the injectable business, what is the current size annually? And are we seeing some supply challenges in terms of syringes, –, etc?

Amit Agarwal — Head of Investor Relations and Director of Finance, FP&A & IR

So cars, about 16%, 17% of our business is from injectables.

Erez Israeli — Chief Executive Officer and Member of the Management Council

And we do not see right now a challenge of supply.

Prakash Agarwal — Axis Capital — Analyst

Okay. Because one of your peer group has talked about the recent call that there have been shortages in stoppers and syringes, especially for the U.S. market. That’s why.

Erez Israeli — Chief Executive Officer and Member of the Management Council

Okay. I don’t recall that.

Prakash Agarwal — Axis Capital — Analyst

Okay. Perfect. And secondly, on this endeavor of you recognizing in this quarter, I understand the case was on some time back. So what triggers the recognition particularly for this quarter?

Erez Israeli — Chief Executive Officer and Member of the Management Council

No. The litigation that we won in the past was on the IP case. If you recall, we were inducted when we launched the product in June 2018, and we were denied to go to the market for nine months. And the $72 million is a settlement for that period of time, but we were denying from coming to the market.

Prakash Agarwal — Axis Capital — Analyst

Yes. So this is coming quarters back when we won the case.

Erez Israeli — Chief Executive Officer and Member of the Management Council

Not the case, I’m repeating, there are two separate issues. One is to win the IP case. It means that the court decide that we are in fragment situation. And the other is to win the case that we believe that we should get money back because we were denied to go to the market during the injunction period. So this is for the second part.

Parag Agarwal — Chief Financial Officer and Member of Management Council

So this is a settlement that we have entered into in this quarter, and that’s why we are accounted for now.

Operator

The next question is from the line of Madhav Marda from FIS International.

Madhav Marda — FIS International. — Analyst

I just had one quick question. So the India brands, which we have sold. Like what is the sales or EBITDA at which we have sold it to the INR250 crores that you recognized?

Erez Israeli — Chief Executive Officer and Member of the Management Council

So it was answered before.

Parag Agarwal — Chief Financial Officer and Member of Management Council

It’s a multiple. So there are different brands. They have been sold to different companies at different multiples, but the average multiple range is between 3.5% to 4%. –, as just to clarify. I’m giving you the sales margin.

Operator

Ladies and gentlemen, due to paucity of time, that would be our last question for today. I now hand the conference over to Mr. Amit Makara for closing comments. Thank you, and over to you, sir.

Amit Agarwal — Head of Investor Relations and Director of Finance, FP&A & IR

Thank you all for joining us for today’s earnings call. In case of any further queries, please get in touch with Investor Relations team. Thank you.

Operator

[Operator Closing Remarks]