Dr. Reddy’s Laboratories (DRREDDY) Q2 FY24 Earnings Concall Transcript

Dr. Reddy’s Laboratories  ( NSE : DRREDDY) Q2 FY24 Earnings Concall dated Oct. 27, 2023

Corporate Participants:

Richa Periwal — Head Of Investor Relations

Parag Agarwal — Chief Financial Officer

Erez Israeli — Chief Executive Officer

Analysts:

Mikaela Franceschina — Barclays — Analyst

Kunal Dhamesha — Macquarie — Analyst

Neha Manpuria — Bank of America — Analyst

Saion Mukherjee — Nomura — Analyst

Surya Narayan Patra — PhillipCapital India Private Limited — Analyst

Aman Vij — Astute Investment Management — Analyst

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

Devang Saraogi — Individual Investor — Analyst

Damayanti Kerai — HSBC — Analyst

Gagan Thareja — ASK Investment Managers — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Dr. Reddy’s Q2 FY24 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode. [Operator Instructions] I now hand the conference over to Ms. Richa Periwal. Thank you and over to you ma’am.

Richa Periwal — Head Of Investor Relations

Thank you Darwin. A 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 September 30, 2023. Earlier during the day, we’ve released our results and the same is 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 will be based on the IFRS consolidated financial statements.

The discussion today contains certain non-GAAP financial measures or a reconciliation of GAAP to non-GAAP measures. Please refer to our press release. To discuss the business performance and outlook, we have our CEO, Mr. Erez Israeli; and our CFO, Mr. Parag Agarwal, along with the Investor Relations team. Please note that today’s call is a copyrighted material of Dr. Reddy’s and cannot be rebroadcasted or attributed in press or media outlet without the Company’s expressed written consent. Before I proceed with the call, I’d 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 Parag.

Parag Agarwal — Chief Financial Officer

Thank you Richa and a warm welcome to our quarter two FY 2024 earnings call and thank you to everyone joining today. We have built on our positive momentum and delivered another strong quarter of financial results with highest ever sales and record profitability. In the Financial overview section that I will cover today. All the amounts are translated into U.S. dollars at a convenience translation rate of INR83.08, which is the rate as of 30th of September 2023. Consolidated revenues for the quarter stood at INR6,880 crores, that is $828 million and grew by 9% on year-on-year basis and by 2% on a sequential basis.

The growth was driven by the generics business mainly in U.S. and Europe. Consolidated gross profit margin for this quarter has been 58.7%, a decrease of around 40 basis points over previous year and broadly flat sequentially. Gross margins for the global generics and PSCI business were at 63.6% and 17.8% respectively. The SG&A expense of the quarter is INR1,880 crores which is $226 million an increase of 13% year-on-year and increase of 6% quarter-on-quarter. The year-on-year increase is primarily on account of investment in sales and marketing, digitalization, and other business initiatives.

The SG&A cost as a percentage to sales were 27.3% and is marginally higher by 106 basis points year-on-year and 105 basis points quarter-on-quarter. The R&D spend for the quarter is INR545 crores, that is $66 million and is at 7.9% of sales. Our R&D investments are driven by ongoing clinical trials on differentiated assets as well as other developmental efforts to build a healthy pipeline of new products across our market for both small molecules and biosimilars. The EBITDA for the quarter is INR2181 crore that is $263 million and the EBITDA margin is 31.7%. Our profit before tax for the quarter stood at INR1913 crores, that is $230 million an increase of 19% year-on-year and 4% over previous quarter.

The net finance income for the quarter is INR123 crores. Effective tax rate has been at 22.6% for the quarter the effective tax rate was lower than the previous year mainly due to adoption of corporate tax rates under section 115BAA of the Income Tax Act of India. We expect our normal ETR for the year to be in the range of 24% to 25%. Profit after tax for the quarter stood at INR1480 crores, that is $178 million reported EPS for the quarter is INR88.8. Operating working capital reduced by INR598 crores which is $72 million against that on June 30, 2023, mainly due to decrease in receivables.

Our capital investment stood at INR322 crores which is $39 million in this quarter. The free cash flow generated before acquisition-related payout during this quarter was at INR1447 crores which is $174 million. Consequently, we now have a net surplus cash of INR5906 crores which is $711 million as on September 30, 2023. Foreign currency cash flow hedges in the form of derivatives from the US dollar are approximately $648 million largely hedged around the range of INR82.9 to INR84.5 to the dollar RUB2475 million at the rate of INR0.98 to the Ruble and AUD2.7 million at the rate of INR58.06 to Australian dollar maturing in the next 12 months. With this, I now request Erez to take us through the key business highlights. Thank you, Parag, and a warm welcome to everyone participating in our earning call today. As always, we appreciate your interest in our Company. We are pleased to report a quarter with the highest ever revenue, EBITDA, profit before tax, and profit after tax. We saw growing momentum in our products and businesses. Our geographic diversification, productivity improvement in operations, enabled operating margin delivery. We continued strategic progress on our various key initiatives to ensure that we are well-positioned for differentiated and competitive growth. Let me take you through some of the key highlights of the quarter. Sales for quarter two grew 9% and EBITDA grew by 13%, reflecting the portfolio strengths and continued momentum in U.S. and Europe. We generated healthy EBITDA at 32% and annualized ROCE at 39%. High cash generation, leading to net cash surplus of more than $712 million at the end of the quarter. A few developments in our global biosimilars journey in the quarters include receiving of GMP certificate indicating closure of inspecting by the U.K. MHRA for Bachupally biologic facility. A pre-approval inspection by the USFDA of our biologics facility based in Bachupally concluded with nine observations. We will address them within the stipulated timeline. CAR-T asset DRL-1801 approved for clinical trials in India. The leading financial publication, Financial Express and E-cube, in a joint study, have named Dr. Reddy’s as the leading Company in ESG in India across sectors. The company received SA8000, a multisite certification includes CTO six unit — six CTO units, and ten formulation units at Biologics, and has been successfully audited and awarded compliance to ISO 20400:2017. This demonstrates organizational commitment towards social goals and accountability. We were conferred with the prestigious Golden Peacock Award for Excellence in Corporate Governance of 2023. Now let me take you through the key business highlights for the quarter. Please note that all references to these numbers in these sections are representative of local currencies. Our North America generic business recorded sales of $384 million for the quarter with strong Eaglefield [phonetic] growth of 9% while being broadly flat on sequential basis. The growth was supported by market share expansion in certain existing key products and complete integration of main portfolio which more than offset price erosion. We launched four new products during the quarter. Our Europe business recorded sales of EUR59 million this quarter with the year-on-year growth of 12% and sequential increase of 4%. The contribution for new product launches and improvement in base business volumes more than offset price erosion. We launched a total of 20 products across markets during this quarter. Our emerging markets business recorded sales of [indecipherable] crores, a marginal year-on-year decline of 1% and sequential increase of 5%, primarily impacted by seasonality and unfavorable products. While we may experience Q-on-Q volatility, full-year outlook is on track. We launched 32 new products during the quarter across various countries of the emerging markets. Within the emerging market segment, the Russia business grew by 4% on year-on-year basis and 9% on sequential basis in constant currency. Our India business recorded sales of INR1,186 crores and reported year-on-year growth of 3% and sequential increase of 3%. Excluding loss of revenues from NLEM-related price reduction, India business grew in mid single digits. Our focus on profitable growth coupled with sales and marketing execution have led to gradual improvement in business performance. We further made following strides to access new growth levers and drive differentiation. We signed a new licensing deal with Hengrui for Pyrotinib. We launched Nerivio in india, our first digital therapeutic products addressing unmet need of migraine patients. We launched a direct-to-consumer platform celevidawellness.com for serving the needs of diabetic patients in India. India remains our priority market and will continue to strengthen presence in generic business while investing and building the innovation spaces. Our PCAI business recorded sales of $85 million with a year of year growth of 5% and sequential increase of 4%. We expect sales to improve over the next couple of quarters on back of increasing volume pickup and strategic collaboration with regional and global players. We invested 7.9% of our revenue to empower and enhance our RND competency. Our efforts are focused on developing value-accretive products, including several generic injectable biosimilars where there is a patient need. We have done six global generic filings, including two ANDAs and one NDA filed in the United States during quarter two of FY ’24, and are on track to accelerate on this in the balance of year FY ’24. We remain focused on building best-in-class capabilities and commercial infrastructure to leverage our portfolio to expand further. Our ability to adapt strong execution and financial muscles will enable us to grow our core business and build pipeline of products to meet patient needs. I am pleased with the progress that we have made so far this year and that we have a clear plan in place to move forward at the pace to deliver on our key objectives and support, the overall growth ambitions of the Company. With this, I would like to open the floor for questions and answers.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Balaji Prasad from Barclays. Please go ahead.

Mikaela Franceschina — Barclays — Analyst

Hi, this is Mikaela on for Balaji. Thanks for taking our questions. Given India remains a priority market for you, could you just provide an outlook on your Indian market and just elaborate a bit more on the evolution in your India focus? Thank you.

Erez Israeli — Chief Executive Officer

So, the main focus is and the main effort is actually licensing on collaborating with the partners to bring innovation to India. This is the most important initiative that we have for India. In addition to that, we identify a focus portfolio in which we are growing and indeed, by the way, this focus portfolio is growing very, very nicely. Indeed, the overall, the overall performance of the portfolio that we have today is growing in mid-single-digit. Part of it is also because as per the plans we have obviously seen most that, we have a price erosion as expected when required that it meets our expectation from business case, but naturally has contributed also to this decline. If you wish the portfolio that we are focusing on actually growing double digit and likely that’s what you’re going to see for quarter-to-quarter that we are actually improving our performance.

Mikaela Franceschina — Barclays — Analyst

Great. And just one follow-up, if I can. What kind of innovations in therapeutic areas are you targeting, and just how willing are partners to launch in India when you approach them about these deals? Thanks.

Erez Israeli — Chief Executive Officer

There is actually enthusiasm to — naturally, India is an important country. Everybody understands that. There is always concern about the price points, about the adoption of — India has certain requirements that are relevant to localize the product, whether it’s local production or local trials or maybe different position of this product. But in general, people understand that India is an important market, important country, and they want to have a presence here and they want to work very much with a reputable company, and we are one of them. The — sorry, I lost your first part of the question.

Mikaela Franceschina — Barclays — Analyst

Just what kind of innovations in therapeutic areas specifically are you targeting?

Erez Israeli — Chief Executive Officer

Yes, sorry about that. We are targeting primarily areas like cardiovascular, diabetic, and CNS Oncology, especially in an area in which we can find standard of care or something that is better from the current standard of care. So what is driving us is primarily, if we see an innovation that are addressing those areas, this is also the area in which we, at least in our analysis, we find the utmost unmet need.

Operator

Thank you. The next question is from the line of Kunal Dhamesha from Macquarie. Please go ahead.

Kunal Dhamesha — Macquarie — Analyst

Hi, thank you for the opportunity. So the first one on the nine observation for the biologic plant that we have received. Can you please elaborate what is the nature of these observations, and whether we need to undertake some corrective preventive actions here?

Erez Israeli — Chief Executive Officer

I believe that those observations are addressable. We are going to address all of them in the beginning of November. Some of them will require us to create a CAPA [indecipherable] which means that we need to produce certain products for a certain period of time in order to show a certain consistency of data, which will take us to January. But overall, I believe that this is addressable.

Kunal Dhamesha — Macquarie — Analyst

Sure. And, and second one on the PSAI business. So if I look at the gross margin for that business has gone down, obviously, there is some growth on a quarter-on-quarter basis and year-on-year basis. But is it primarily due to, you know, the unfavorable pricing environment? And if that is the case, do we get the benefit of lower API prices in our global generic business, if that is like more widespread pricing decline in APIs?

Erez Israeli — Chief Executive Officer

I don’t see such a decline in the API like it was in previous years. Most of the growth is coming when new products and launches that likely to happen by the customer of our API, of our PSAI business. So, if you wish, we are now selling the API that will serve them in the next period of time, the next quarters. What we see now is the impact of the new portfolio that we worked on in the last couple of years, which is replacing the old portfolio from the decade before. And as time will go by, we will launch more and more of this product and you’ll see acceleration in growth because of it.

Kunal Dhamesha — Macquarie — Analyst

And the gross margin for this business, will it also improve? Because it has come down to now around 13%.

Erez Israeli — Chief Executive Officer

So as we, as we grow the sales, we normally grow the gross margins because it kind of have relatively higher level of fixed cost. So, as you grow, you’re also increasing your margin. That’s what is likely to happen.

Parag Agarwal — Chief Financial Officer

Kunal, to clarify, the gross margin for this business we have reported is 18% during the quarter, not 13%.

Kunal Dhamesha — Macquarie — Analyst

Okay. Sure, I’ll check. Yeah. And lastly, Abhinav[phonetic] you have mentioned price erosion in U.S. as a growth drag, Abhinav[phonetic] at least on a quarter-on-quarter basis, perhaps. Now, this price erosion in this quarter, is it limited to few large products such as Vasopressin or it is more broad-based price erosion that you are witnessing?

Erez Israeli — Chief Executive Officer

The price erosion always affects sales and products that went into either bid or RFP or competitive situation in that particular quarter. It’s never broad, but let’s say relatively to other years this year, it’s more moderate than used to in other years.

Kunal Dhamesha — Macquarie — Analyst

And lastly, on the same thing, you know, the shortage situation and then, you know, some of the short-term contracts, et cetera, are those opportunities continuing into quarter two and probably in quarter three? That is what the trend you are seeing?

Erez Israeli — Chief Executive Officer

Yes, absolutely. Absolutely the focus in the U.S. on continuity, service, and sustainability of supply. Absolutely.

Kunal Dhamesha — Macquarie — Analyst

Thank you.

Operator

Thank you. The next question is from the line of Neha Manpuria from Bank of America. Please go ahead.

Neha Manpuria — Bank of America — Analyst

Thanks for taking my question. First on the main acquisition. You know, when we had announced this acquisition, it had a revenue base of about $65 million, $70 odd million. You know, post nearly, you know, five, six months of integration into the Reddy’s portfolio, have we seen traction in terms of our ability to gain more volume, you know, in the product? Because we don’t see that in products like NuvaRing, which is, you know, stuck at that 2%, 3% market share? Or, you know, how should we look at that acquired portfolio going forward?

Erez Israeli — Chief Executive Officer

Each one of these products has different timing in which customers are putting their RFP or open for those kind of discussions. I believe that this will grow and will pick up volumes as these timelines will be there. So — and most of those discussions likely to happen in the second half of the year. So far I’m happy with this deal. It’s meeting our expectations and likely that you will see growth in the next two quarters.

Neha Manpuria — Bank of America — Analyst

And on NuvaRing, sir, any reason why it’s, you know, stuck at about the 2%, 3% market share despite, you know, the launch in Feb?

Erez Israeli — Chief Executive Officer

Timing of the discussions with customers.

Neha Manpuria — Bank of America — Analyst

Okay. Understood. My second question is on the India business. You know, we have guided to wanting to grow higher than the market double digit in this business. But, you know, for several quarters now, that hasn’t been the case, at least if you look at the market data. You know, when do we think we get to that growth trajectory and the collaborations and licensing that we talked about? You know, when do you actually see that materialize and flow through numbers?

Erez Israeli — Chief Executive Officer

Likely that we are going to see it already this year, this fiscal. The — in terms of the innovation, what we see now is the launch of deals that we signed a year ago. So it takes about 12 months to 18 months from the time that you sign a deal until you get your product approval. Naturally, you need to go through the regulatory process. In some of the cases, we need to do clinical trials and the regulatory process and then it takes a bit longer. And this is also right now the main efforts in terms of building the portfolio in India. In each one of them, it’s about to bring the products that are either going to be the standard of care or better than the current standard of care. In addition to the business the products that we are focusing on in India are growing in double digits, and likely that they will be more dominant in the future in that respect.

Neha Manpuria — Bank of America — Analyst

Just to understand, you know, this correctly, we are saying that we will be able to achieve double-digit growth in India this year?

Erez Israeli — Chief Executive Officer

I believe that in the end of the year, we should see a double-digit growth and will continue in the quarters after.

Neha Manpuria — Bank of America — Analyst

And how many of such licensing deals have we completed in India so far, you know, just to get a broad sense? And is there any monetary value that we can attach to, you know, this is the potential market opportunity or market size of these deals?

Erez Israeli — Chief Executive Officer

So I hope I’m giving you the right numbers, but it should be around 10 and we are normally going for a product that will be at least INR100 CR. And of course, some of them can be much more than that.

Neha Manpuria — Bank of America — Analyst

Understood. Thank you so much, sir.

Operator

Thank you. The next question is from the line of Saion Mukherjee from Nomura. Please go ahead.

Saion Mukherjee — Nomura — Analyst

Yeah, thanks. Sir, can you tell us on Biosimilar Rituximab, what’s the timeline you’re looking at now for the U.S. and European markets?

Erez Israeli — Chief Executive Officer

We submitted it in April. We just got the pre-approval inspection, so we will answer it by November. So now we hope that it will stay on course and let’s say if everything will be okay, we will be able to launch it in the beginning of FY ’25.

Saion Mukherjee — Nomura — Analyst

Okay. And if I look at quarter-to-quarter, on quarter revenue in the U.S., which is sort of flattish, can you just share the dynamics with respect to main contribution REVLIMID and the base business? How each of these buckets have moved quarter-on-quarter?

Erez Israeli — Chief Executive Officer

Most of the growth came from volume growth and demand portfolio.

Saion Mukherjee — Nomura — Analyst

Okay. And finally, on the U.S., you know, how many launches we are expecting for the full year? How much we have done so far in the first half? And how should we think about material launches from your pipeline if you can guide something in terms of timeline, you know, where you could expect some, you know, material launches to happen?

Erez Israeli — Chief Executive Officer

Sure. So this year we are still on track with the 25 to 30 launches. And we have identified a group of between something similar, 25 to 30 products which are material that will be launched in FY ’25, in FY ’26, and FY ’27.

Saion Mukherjee — Nomura — Analyst

How many, sir? 25 products, you’re saying, across these three years?

Erez Israeli — Chief Executive Officer

25 to 30. Because, you know, there’s some uncertainty about time of approval. So that’s what we can guide.

Saion Mukherjee — Nomura — Analyst

And, you know, sir, I mean, when you say material, what kind of revenue potential typically, you know, a product with the material contribution would contribute?

Erez Israeli — Chief Executive Officer

It has to be at least with a single digit and millions of dollars of sales.

Saion Mukherjee — Nomura — Analyst

Okay. Yeah. Thank you.

Operator

Thank you. The next question is from the line of Surya Patra from PhillipCapital. Please go ahead.

Surya Narayan Patra — PhillipCapital India Private Limited — Analyst

Thanks for this opportunity, sir. And congrats to the great set of numbers. Sir, first, clarification about the government grants. So, in fact, in the previous year, we have seen something around INR300 odd crores. In the first half, it is more than INR200 crores that we have already booked. So what is the visibility here and how long this can sustain? And this is relating to the PLI only or something else?

Parag Agarwal — Chief Financial Officer

So this includes PLI, but also as the other export incentives that we are entitled to. Overall, our PLI scheme and the other export incentives this year would be marginally higher than last year. But quarter-on-quarter, there is always a fluctuation because we have to recognize this in line with the entitlement sales growth that we show as per the scheme. So there are quarter-on-quarter fluctuations. But for the year as a whole, we’ll be higher than last year.

Surya Narayan Patra — PhillipCapital India Private Limited — Analyst

But this is sustainable, sir?

Parag Agarwal — Chief Financial Officer

Yes, it is. It is. For the next several quarters, we expect it to be meaningful.

Surya Narayan Patra — PhillipCapital India Private Limited — Analyst

Okay, fine. My second question is about the sustainability of the U.S. business. So basically, say, having seen the run rate of around $300 million — $380 million, $390 million kind of quarterly run rate, and kind of the ramp of what we have witnessed in case — in terms of our agreement, so can we see a kind of progressive performance in the overall U.S. business going ahead? I’m saying progressive because I believe in terms of the volume limit condition, whatever that is there, in case of rev limit, every 12 months, that should see a kind of upward move. So considering that, how should we see the U.S. business going ahead in terms of the quarterly run rate and all that?

Erez Israeli — Chief Executive Officer

The quarters can fluctuate. We discussed it in the past because the quarter is very much depends on the ordering patterns of this program. But overall, you should see growth.

Surya Narayan Patra — PhillipCapital India Private Limited — Analyst

Okay. Okay. Fine, sir. And my second question is about this European business. So in the first half, both the quarters, we have seen a kind of very strong growth, more than 20% kind of growth. What is driving that? And is it the launch of the biosimilar, introduction of the new product or even the pricing scenario, any improvement in the pricing scenario there, demand situation improving? Could you give some sense about Europe, why is it delivering this kind of growth, and whether it is sustainable even in the subsequent period?

Erez Israeli — Chief Executive Officer

So it’s primarily new product launches. There is also some volume growth, let’s say, of the base business. And just more markets are participating in more tenders, most of our growth coming from injectables and just winning tenders.

Surya Narayan Patra — PhillipCapital India Private Limited — Analyst

Okay. Since — since we are now seeing progress in regulatory point of view as well as the launch point of view in terms of biosimilars, so is it possible to share some update about the pegfilgrastim’s success in the U.S. and non-U.S. market? And — or even generally for biosimilar, what is the, let’s say, annual or quarterly run rate that we are currently having? If you can give some sense, that would be really helpful, sir.

Erez Israeli — Chief Executive Officer

So just to remind, peg is not our product. It is a product that was part of the arrangement that was done [indecipherable] that was brought to [indecipherable]. So they are selling it. We are getting only royalty. So by design, it’s not a big amount. Most of our activities in the biosimilars today are in emerging markets, primarily Rituximab and five other products in India, Russia, and other emerging markets. We are ramping up that activity that is very important to us. We are going to have in the next two years or so, about five Phase III of biosimilars to be launched globally, including the United States. And the main ramp-up in biosimilars for us will be probably from FY ’27 onwards.

Surya Narayan Patra — PhillipCapital India Private Limited — Analyst

Okay. Okay. Just last one question, sir. See, in fact, the — obviously, there is a kind of a strong cash flow that we have been seeing also supported by REVLIMID, but whatever the case be, but we have been seeing a quarterly run rate of, let’s say, INR1,500 crore kind of cash flow — free cash flow. And already, we have INR6,000 odd crores kind of cash in books. So could you give some sense of what incremental growth this fund can add to the overall visibility of our growth for next, let’s say, next one or two years or over a period of three years?

Erez Israeli — Chief Executive Officer

No. The beauty of that is that we can use this money for deals. Now it depends what deals we want to have and the — in what multiples we will have them. I hope I understood the question right. So if it will — what we want to do with this money is primarily use it for inorganic activities, which can serve us both in the short term like we did with Mayne as well as in the longer term, for example, to acquire assets or products that we can launch in years after. But absolutely, this is the main use of the money, and this should help us to generate growth. But the timing of it, of course, is not certain because we don’t know what type of deal and when it will impact us.

Surya Narayan Patra — PhillipCapital India Private Limited — Analyst

Sure, sure. Yeah. Thank you, sir. Wish you all the best.

Erez Israeli — Chief Executive Officer

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Aman Vij from Astute Investment Management. Please go ahead.

Aman Vij — Astute Investment Management — Analyst

Yeah. Hi, sir. Question is on our diabetic portfolio. So if you can talk about how well are we placed as a Company to take the advantage of the upcoming GLP-1 opportunity that is coming? So I believe you have some FDA filings in that. So in terms of launch ready, are we ready? Whenever the expiry happens, we’ll be there. And do you think this product category can be like a $300 million to $500 million kind of category for — in the next five years?

Erez Israeli — Chief Executive Officer

So we are going to be there, definitely, day one. And as for the size, I don’t know. But obviously, I have a great belief in this category.

Aman Vij — Astute Investment Management — Analyst

I’m sorry. In terms of the important dosages, are we present in all of them, and — if you can talk about the same?

Erez Israeli — Chief Executive Officer

I don’t want to discuss specifics because if we do not make it public, but we should have all the relevant ranges, depends on the geography and depends on the country. But we see this category as a global category for us to launch in all the markets that we have a presence.

Aman Vij — Astute Investment Management — Analyst

And you are saying we are ready in terms of whenever expiry happens. If you have FDA filed, we can launch in the next day itself?

Erez Israeli — Chief Executive Officer

We are ready.

Aman Vij — Astute Investment Management — Analyst

Sure. My second question is on this other biosimilar, which I think we have on the Osteoporosis side. If you can talk about the opportunity in U.S., because I believe there is a patent expiry coming up, so are we planning to launch in the U.S. market? And if yes, do you think we can take [technical issue]?

Erez Israeli — Chief Executive Officer

Sorry, which products? Which product?

Aman Vij — Astute Investment Management — Analyst

Yeah, yeah. I was talking about Osteoporosis, Teriparatide and there are one or two more products that we have. So I was trying to understand that U.S. patent, the expiry is coming up. So do you think we can have a good market share in U.S. markets with our biosimilars?

Erez Israeli — Chief Executive Officer

Yeah. So I’m not calling Teriparatide biosimilars. For me, these are still equivalent to small molecules. Biosimilars normally look for products that are bigger, like [indecipherable], et cetera. But specifically for this product, absolutely. I believe that it will be very nice for us and we will be ready to launch it when it’s possible.

Aman Vij — Astute Investment Management — Analyst

Sorry. On the timeline, so I believe it will be in the next few months only, right, on the U.S. launch of this product?

Erez Israeli — Chief Executive Officer

I don’t want to stipulate on time at this stage.

Aman Vij — Astute Investment Management — Analyst

But we are ready to launch whenever it happens?

Erez Israeli — Chief Executive Officer

We will be ready.

Aman Vij — Astute Investment Management — Analyst

Sure. These are my questions. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Tushar Manudhane from Motilal Oswal Financial Services. Please go ahead.

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

Yeah. Thanks for the opportunity, sir. Just on this e-commerce foray, so I’d like to understand, you know, what kind of your strategy behind it? What kind of investment are we thinking in this particular foray?

Erez Israeli — Chief Executive Officer

Investment of what, sorry?

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

In e-commerce.

Erez Israeli — Chief Executive Officer

It’s not a big investment, but it allows us additional channel for our products as well as other nutraceuticals. And I believe that it’s a very nice another channel and another part of the capabilities that we have now in India. But it’s not a big investment.

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

Okay. But in addition to the typical nutraceutical products, would we be also having this prescription-based product on this platform?

Erez Israeli — Chief Executive Officer

You know, this specific platform is direct-to-consumer that you mentioned, which means it’s nutraceuticals and the products that do not require prescription, OTC.

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

And, sir, secondly, just on the trade receivables, there’s been a reasonable reduction if I compare quarter-over-quarter. Any read-through over there?

Parag Agarwal — Chief Financial Officer

Sorry, Tushar. Your voice is not clear. Can you repeat that question?

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

Is it better? Is it better?

Parag Agarwal — Chief Financial Officer

Yeah, yeah.

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

There has been good reduction in the trade receivables quarter-over-quarter. Any read-through over there?

Parag Agarwal — Chief Financial Officer

It is still normal. There’s nothing unusual. I think it depends on the credit period and the cycle and the receipt of orders. So we obviously keep a very tight track of all our receivables and select on time. So nothing unusual in this, yeah.

Tushar Manudhane — Motilal Oswal Financial Services — Analyst

Okay, sir. Thank you. Thank you so much.

Operator

Thank you. The next question is from the line of Devang Saraogi, an individual investor. Please go ahead.

Devang Saraogi — Individual Investor — Analyst

Sir, are we looking at any 505(b)(2) opportunities in the U.S. market?

Erez Israeli — Chief Executive Officer

Sorry, which opportunities in the U.S. market?

Devang Saraogi — Individual Investor — Analyst

505(b)(2) opportunities.

Erez Israeli — Chief Executive Officer

For which product? Sorry.

Devang Saraogi — Individual Investor — Analyst

In general.

Erez Israeli — Chief Executive Officer

505(b)(2) that requires sales force, we will not do. 505(b)(2) that is interchangeable, we would love to do.

Devang Saraogi — Individual Investor — Analyst

Okay. And what would be the price erosion for the quarter?

Erez Israeli — Chief Executive Officer

What is the.

Devang Saraogi — Individual Investor — Analyst

Price erosion.

Parag Agarwal — Chief Financial Officer

Price erosion is — yeah, price erosion, we are finding the trends to be stable, Tushar. So if we look at the last few quarters, we had seen price erosion moderating, and we are now seeing it around the same level. So — but from one quarter to another, it will typically fluctuate between, say, high single digit to low double digits.

Devang Saraogi — Individual Investor — Analyst

Okay. And are we — are we going to see any price increases as many suppliers are going out of the market?

Erez Israeli — Chief Executive Officer

We are not building on that.

Devang Saraogi — Individual Investor — Analyst

Or it will be product-specific?

Erez Israeli — Chief Executive Officer

It’s normally product-specific, and we are not building on that. If we — if there is a shortage situation and there will be — we will supply, but we are not building into our models any price increases.

Devang Saraogi — Individual Investor — Analyst

Thank you, sir.

Parag Agarwal — Chief Financial Officer

Yeah. Whenever there’s an opportunity — opportunistic, not strategic. Yeah.

Devang Saraogi — Individual Investor — Analyst

Thank you, sir.

Operator

Thank you. The next question is from the line of Damayanti Kerai from HSBC. Please go ahead.

Damayanti Kerai — HSBC — Analyst

Hi, thank you for the opportunity. My question is on India business. So first of all, can you like tell us how much India sales is currently contributed by chronic therapies? And then second part of my question is how many sales representatives you have for your India business? And do you have plans to expand on it?

Erez Israeli — Chief Executive Officer

The chronic is about 75% of the business. And as plan goes by, because most of what we will launch, especially innovation, will be more chronic in nature, this will grow. As for the numbers of salespeople, if I remember correctly, it’s a little bit more than 6,000 people. And we’ll grow as — and we’ll grow as we will bring the innovation. So accordingly, we would adjust the numbers.

Damayanti Kerai — HSBC — Analyst

Okay. But right now, you do not have any particular need to expand your salesforce. As you said, you’re focusing more on innovative products. As and when you launch, you will decide accordingly.

Erez Israeli — Chief Executive Officer

I don’t see a need to increase, and it’s more about the productivity of the team and the coverage of this team. And — but it’s not so much about the numbers of the people. But if we need more, we will have more.

Damayanti Kerai — HSBC — Analyst

Okay. I think this question was earlier discussed. So India, despite many efforts from your end, we have been seeing sales largely remain range bound somewhere, say, $12 billion a quarter or so. So when we can see significant step up coming up, so any timeline if you can indicate? Because I guess for last six to eight quarters, sales were broadly in this range.

Erez Israeli — Chief Executive Officer

See, I think you’re going to see an improvement already this year. Indeed, we — the focus — we took two decisions about India just to remind and this is the effect that it comes with it. One, we decided to focus and we actually made quite a few deals of divesting brands. So we kind of trimmed down the base portfolio because we do not believe that post the changes that will happen with all the challenges that generics — branded generics will have in India, these brands likely to be successful. And we felt that it was a good deal for us. And second, we also acquired brands, for example, Cidmus, which we knew that at the time that it will face price erosion, it matched the business case that we had on it.

I believe that already the brands that we are focusing on are growing in double digits, plus we are going to launch more and more innovation and have more and more collaborations. So you will start to see this year and as we will add products to the portfolio, it will continue to grow. It’s a focused market for us. It’s a strategic market for us and we will grow it.

Damayanti Kerai — HSBC — Analyst

Sure. My second question is, if you can talk a bit about your progress for the China market, how many approvals you have got and what kind of findings have been done so far?

Erez Israeli — Chief Executive Officer

We are actually very pleased with the progress over there especially since April, the number of approvals started to pick up, and I think that we had four approvals. And this month, I think we got additional two approvals or six altogether. And we are also filing more than 15 products a year now. I think we can get even to 18. We — everything will go well. And most of our products are among the first wave and normally among the first three. So it’s a very interesting area for us in China. We — at the time we thought that the ramp-up will be earlier than what I communicated in the past, but COVID — you know, COVID, and also our own execution may be late, but now it’s absolutely bearing fruits.

Damayanti Kerai — HSBC — Analyst

Sure. So with this portfolio buildup, should we assume China portfolio could start contributing meaningfully from next fiscal or it will be bit long-term in nature?

Erez Israeli — Chief Executive Officer

No, no. For next fiscal, absolutely.

Damayanti Kerai — HSBC — Analyst

Okay. Okay, that’s helpful. And my last question is how should we look at your R&D spend going ahead as you focus more on differentiated products for your global segments?

Erez Israeli — Chief Executive Officer

Likely that it will grow because we are investing more and more in biosimilars. So we — and we will continue, of course, to invest in the new molecules. So you’re going to see a more directed growth, but also the sales will grow. So let’s say the, — the — in terms of percentage, it should be give or take in the range that we are today. Maybe a bit higher.

Parag Agarwal — Chief Financial Officer

Yeah.

Damayanti Kerai — HSBC — Analyst

Okay. That’s helpful. Thank you very much.

Erez Israeli — Chief Executive Officer

Sure.

Operator

Thank you. The next question is from the line of Gagan Thareja from ASK Investment Managers. Please go ahead.

Gagan Thareja — ASK Investment Managers — Analyst

Yeah. Good evening. I hope I’m audible.

Operator

Yes. You’re audible, sir.

Gagan Thareja — ASK Investment Managers — Analyst

Okay. The first question is on the India business. If you knock out the discontinued products from the base quarter, 1Q or 2Q of FY ’23.

Operator

Sir, sorry to interrupt. You are audible, but I think you are too close to the mic.

Gagan Thareja — ASK Investment Managers — Analyst

Okay. Is it better?

Operator

This is much better, sir. Please go ahead.

Gagan Thareja — ASK Investment Managers — Analyst

Okay. So my question is that, you know, adjusting for the discontinued products, what would have the India sales growth been year-on-year for the quarter?

Erez Israeli — Chief Executive Officer

So without these products and without NLEM, we are about mid-single digits for the quarter.

Gagan Thareja — ASK Investment Managers — Analyst

Okay. And for U.S., from 1Q to 2Q, would there have been a material difference in the REVLIMID sales for you?

Erez Israeli — Chief Executive Officer

I cannot discuss the quantities of the REVLIMID, sorry.

Gagan Thareja — ASK Investment Managers — Analyst

No. I don’t want you to enumerate the number. I’m just asking, would it be a reasonable assumption or inference that there won’t have been a material change in REVLIMID sales from the first quarter to the second?

Parag Agarwal — Chief Financial Officer

The most of the growth, like Erez said earlier, has come from the base business and also the main portfolio.

Gagan Thareja — ASK Investment Managers — Analyst

Okay, right. And India, is it correct to surmise that you’re saying that India, you’ll exit FY ’24 with a double-digit sort of growth rate? That’s Q4, you’ll be able to do a double-digit sort of a growth rate, and you will probably be improving from 2Q to 3Q and from 3Q to 4Q. Is that a correct inference?

Erez Israeli — Chief Executive Officer

That’s what we are trying to do, absolutely.

Gagan Thareja — ASK Investment Managers — Analyst

Right. Okay. Thank you. I’ll get back in the queue.

Operator

Thank you. The next question is from the line of Saion Mukherjee from Nomura. Please go ahead.

Saion Mukherjee — Nomura — Analyst

Yeah. Thanks for the follow-up. My question is around, you know, you mentioned about inorganic activities. You know, the cash balance is significant and it could continue to rise. You know, if you look at, you know, the acquisitions and deals that you’ve done, they are much smaller in size. So one is that, you know, it seems that are you — so basically the question is, are you looking at larger deals going ahead? Is there more activity that you’re seeing on the M&A side? And related to that, what’s the level of leverage that as a Company you would be comfortable with?

Erez Israeli — Chief Executive Officer

So we are looking for all deals, small and bigger than usual for us, as needed. But we are not in a rush. It has to be a good deal. It has to be something that will match our strategy, something that we believe can contribute to our growth, either products that we want or capability that we are missing. We are not in a rush to spend this money. In that respect, also, the money is yielding very nicely now by investing it. We are — as we speak, we are participating quite a few processes and we’ll see what will yield likely that we will spend eventually this money. But it’s important for us that it will be the right strategic deal for us. We are not looking for transformative deals. We are not looking for complementary activities to our organic strategy.

Saion Mukherjee — Nomura — Analyst

And any view on leverage, Parag, as to — what level of leverage you would be comfortable with?

Parag Agarwal — Chief Financial Officer

See, we can — I would say two times EBITDA is what we would be willing to go for. Beyond that, we would not like to take a financial risk.

Saion Mukherjee — Nomura — Analyst

Okay. Okay. Thank you.

Operator

Thank you. The next question is from the line of Neha Manpuria from Bank of America. Please go ahead.

Neha Manpuria — Bank of America — Analyst

Thanks for the follow-up. Parag, sir, on the, you know, SG&A expense, that seems to have inched up, you know, quarter-on-quarter. You know, just wanted to get a sense on, you know, where are we investing and how should we look at that number, you know, over the next few quarters, and probably FY ’25?

Parag Agarwal — Chief Financial Officer

So overall, Neha, the increase in SG&A, if you see year-on-year, I think we have gone up by 13% apart from the normal inflation. It’s largely because of investments behind our brands. Also, we are investing in digitalization. I have spoken about it a few times extensively, both in the front end as well as in R&D and in our manufacturing facilities. Like last year, FQ3 [phonetic] was named as Digital Lighthouse. We are now working on getting more facilities certified as a Digital Lighthouse. Because we believe that in the medium term, this digitalization is going to make a big impact by, you know, improving quality, reducing quality incidents, improving productivity and costs, and so on.

So these are the areas where we are investing. If you look at overall quarter-on-quarter, we will see fluctuation. But in aggregate, SG&A as a percentage of sales, last year, we were around — you know, it used to be a few years back, we were at 30%, 31% and we have been gradually dropping to 29%, 28% kind of a range. So I wouldn’t like to comment on quarter-on-quarter. But for the full year, I would say, yeah, that’s the range we’ll be around.

Neha Manpuria — Bank of America — Analyst

Got it. Thank you so much, sir.

Operator

Thank you. The next question is from the line of Kunal Dhamesha from Macquarie. Please go ahead.

Kunal Dhamesha — Macquarie — Analyst

Hi, thank you for the opportunity again. So, the first one on the In-licensing innovation deals that we are doing for India. Can you highlight what is the typical payback period for these kind of deals?

Erez Israeli — Chief Executive Officer

So normally, the payout is very good because we hardly put in down payments for debt. So most of the deals have very small down payment and normally we are getting healthy margins that enable us to buy in a transfer pass plus investment. So normally the payout will be within the first three years, taking into account the time that it takes to build brands. So most of the investment is actually not because of the payout to the partner, but rather the investment in building brands in a country like India, which normally takes about three years.

Kunal Dhamesha — Macquarie — Analyst

Sure. Sure. And let’s say for markets like India, are these teams — some of these innovators would be doing it more on a profit share basis or they are more interested in, let’s say, upfront payment and then some royalties?

Erez Israeli — Chief Executive Officer

So most of the deals will be certain milestones and some royalties and giving us the flexibility to market it in the place that we want and with the right mix of SG&A. So that normally will be the case, but we will also have cases in which it will be a profit sharing.

Kunal Dhamesha — Macquarie — Analyst

Sure. And second question on the biosimilar business. Now that we are kind of close to launching our first biosimilar in U.S., probably somewhere in FY ’25, what type of frontend investment would we be looking for salesforce or, you know, the formulary access personnel, yeah, and how much drag it could be on our SG&A?

Erez Israeli — Chief Executive Officer

So the product that will be launched, the Rituximab that will be launched in the U.S. will not be launched by us. So this is a salesforce that is with our partner. The products that we will launch will be from FY ’27 onwards and for that we will have to build a salesforce.

Kunal Dhamesha — Macquarie — Analyst

Okay, perfect. Thank you and all the best.

Operator

Thank you. The next question is from the line of Surya Patra from PhillipCapital. Please go ahead.

Surya Narayan Patra — PhillipCapital India Private Limited — Analyst

Yeah, thanks for the opportunity, sir. Sir, just one clarification I wanted to have. In terms of the margin profile, let’s say, for India business and the base U.S. business, let’s say, excluding REVLIMID, so what could be the differences in terms of the margin profile of these two businesses?

Parag Agarwal — Chief Financial Officer

We don’t disclose geography wise margins, but I can confirm that the margin profile of India business would be better than our North American business.

Surya Narayan Patra — PhillipCapital India Private Limited — Analyst

Okay. And even the Russia would be similar to India or slightly lower than India?

Parag Agarwal — Chief Financial Officer

No, Russia is also a branded generics market, and therefore its margin profile is also quite healthy.

Surya Narayan Patra — PhillipCapital India Private Limited — Analyst

Okay. Sure, sir. Okay. Sir, that means Russia is in between of India and U.S. That is how we should think?

Parag Agarwal — Chief Financial Officer

I’m not ranking the markets. I’m just pointing out that both Russia and India are branded generics businesses and therefore their margin profile is better than the unbranded businesses in U.S. and Europe.

Surya Narayan Patra — PhillipCapital India Private Limited — Analyst

Sure. Okay. Yeah. Thank you, sir.

Operator

Thank you. We have no further questions. I would now like to hand the conference over to Ms. Richa Periwal for closing comments. Over to you, ma’am.

Richa Periwal — Head Of Investor Relations

Thank you all for joining us for today’s evening call. In case of any further queries or clarifications, please do not hesitate to get in touch with the Investor Relations team. Thank you once again.

Operator

[Operator Closing Remarks]