Dr. Reddy’s Laboratories (DRREDDY) Q4 FY22 Earnings Concall Transcript

Dr. Reddy’s Laboratories (NSE: DRREDDY) Q4 FY22 Earnings Concall dated May 19, 2022

Corporate Participants:

Amit Agarwal — Head of Investor Relations

G V Prasad — Co-Chairman and Managing Director

Parag Agarwal — Chief Financial Officer

Erez Israeli — Chief Executive Officer

Analysts:

Ankush — Axis Securities — Analyst

Kunal Dhamesha — Macquarie — Analyst

Neha Manpuria — Bank of America — Analyst

Surya Patra — PhillipCapital — Analyst

Nikhil Mathur — HDFC Mutual Fund — Analyst

Prakash Agarwal — Axis Capital — Analyst

Sameer Baisiwala — Morgan Stanley — Analyst

Vishal Manchanda — Nirmal Bang — Analyst

Nitin Agarwal — DAM Capital — Analyst

Vinod B — InCred Capital — Analyst 

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the Q4 FY ’22 Earnings Conference Call of Dr. Reddy’s Laboratories Limited. [Operator Instructions]

I now hand the conference over to Mr. Amit Agarwal, Head of Investor Relations. Thank you, and over to you, sir.

Amit Agarwal — Head of Investor Relations

Thank you. Very good morning and good evening to all of you and thank you for joining us today for the Dr. Reddy’s earnings conference call for the quarter and full year ended March 31, 2022.

Earlier during the day we have released our results and the same are also posted on our website. This call is being recorded and a playback and transcript shall be made available on our website soon.

All the discussions and analysis of this call will be based on the IFRS consolidated financial statements. To discuss the business performance and outlook, we have the leadership team of Dr. Reddy’s comprising, Mr. G V Prasad, our Co-Chairman and Managing Director; Mr. Erez Israeli, our CEO; Mr. Parag Agarwal, our CFO and the Investor Relations team. Please note that today’s call is a copyrighted material of Dr. Reddy’s and cannot be rebroadcasted or attributed in press or media outlet without the company’s expressed written consent.

Before I proceed with the call, I would like to remind everyone that the safe harbor contained in today’s press release also pertains to this conference call.

Now, I hand over the call to Mr. G V Prasad. Over to you, sir.

G V Prasad — Co-Chairman and Managing Director

Thank you, Amit. Good evening and good morning and welcome to all of you for this earnings call. Fiscal 2022 has been quite a challenging year. It started with the severe wave of COVID in India and ended with heightened geopolitical conflicts, inflationary environment and the economic crisis in certain parts of the world. I am proud that despite all these challenges, our team has delivered very good operational results. Over the last few years, we’ve been able to grow on a consistent basis and the key highlights of this year are healthy revenue growth with steady margins, good progress on the productivity journey, some meaningful launches of products across markets, enhanced offering of the much-needed COVID products and closure of a few significant business development deals.

Our priorities for FY 2023 will be to strengthen our product pipeline across markets, focus on enhancing our quality systems, continue with the productivity agenda and make value accretive inorganic moves. While we continue to focus and grow our core businesses, we will also invest in creating future growth drivers. Our CEO, Erez, would cover these aspects in some detail.

[Technical Issues] is another area we have made significant progress, but there is a lot more to do. We are on a journey to integrate sustainability into — sustainability into our core business strategy and execution system. We have identified multiple areas where we can work towards improving the environment and the societal benefit. Shortly, we will announce our detailed ESG targets for the long-term. We continue to be driven by our credo of Good Health Can’t Wait and we keep the interests of our patients first and we’ll continue to serve them in every possible way with utmost urgency and diligence.

With this I’ll hand over the call to Parag for taking you through the financial performance of the company.

Parag Agarwal — Chief Financial Officer

Thank you, Prasad, and greetings to everyone. Hope all of you are keeping well. I’m pleased to take you through our results for the quarter four and full-year of fiscal 2022. It is yet another year of good financial performance with growth in sales and EBITDA, and a strong cash flow generation from operations. While we faced several headwinds during the year, we mitigated these two productivity initiatives and a few one-time opportunity.

Let me take you through the key financial highlights for the quarter and FY ’22 in a bit more detail. For this section, all the amounts are translated into US dollar at a convenient translation rate of INR75.87, which is the rate as of March, 31, 2022. Consolidated revenues for the quarter stood at INR5,437 crores that is USD717 million, and grew by 15% on year-on-year basis; and by 2% on a sequential quarter basis. The growth has been driven by all markets in our global generics segment and divestment of a few non-core brands. The revenues for the financial year 2022 stood at INR21,439 crores that is USD2.83 billion, and grew by 13%. The growth was supported by improvement in the base business volumes and new product launches.

Consolidated gross profit margin for this quarter has been 52.9%, a decline of 50 basis points year-on-year and 90 bps on quarter-on-quarter basis. While the gross margins benefited from brand divestments income, the decline was primarily attributable to pricing pressure in North America and Europe, combined with the effect of increasing commodity prices. We also had higher provisioning for inventory including for COVID-related products. Gross margin for the global generics and PSAI business were at 58.2% and 18.4% for the quarter.

Gross margins for FY ’22 has been 53.1%, which is a decline of 120 basis points over FY ’21. Gross margin for the global generics and PSAI business were 57.6% and 22.2% for the year. The SG&A expense for the quarter is INR1,567 crores that is USD207 million, an increase of 9% year-on-year and 2% quarter-on-quarter. During the quarter, we made a provision of INR98 crores towards an old outstanding litigation with the State of Texas, US. Adjusted for this charge, we were in line with normalized level of spend. The SG&A expense for the year is INR6,208 crores, that is USD818 million and has grown by 14% in line with business growth. The SG&A cost as a percentage to sales was 29.0%, which is largely in line with previous year. While we continue to drive productivity, in parallel, we would also invest in markets to strengthen our brands positioning, expand market reach in various channels and new countries, continued digitalization agenda, and nurture new businesses.

The R&D expense for the quarter is INR433 crores, that is USD57 million and is at 8% of sales. The R&D expense for FY ’22 is INR1,748 crores that is USD230 million. R&D percentage to sales for the year stood at 8.2%, while we optimize the spend in proprietary products business here, enhance our pipeline and correspondingly the spend for generics, biosimilars, and MCs.

During the quarter, we made an impairment charge of INR752 crores that is USD99 million. The impairments were largely pertaining to first products-related intangibles for PPC-06 from proprietary products segment, wherein the market potential has reduced and secondly Shreveport subsidiary-related assets as there has been a substantial reduction in the cash flows of products forming part of the subsidiary. The EBITDA for the quarter is INR1,298 crores that is USD171 million and the EBITDA margin is 23.9%. The EBITDA for the year is INR5,140 crores that is USD677 million. EBITDA margin for the year is at 24.0% and its closely tracking our aspiration target of 25%.

Our profit before tax for the quarter stood at INR248 crores, that is USD33 million and that for the year stood at INR3,230 crores, that is USD426 million. Adjusted for the impairment and the taxes litigation charges, our profit before tax for the quarter grew by 37% and for the year by 17%. Effective tax rate for the quarter has been at 64.8% and that for the year has been at 27.0%. The ETR was higher due to an impact of impairment charges taken. We expect our normal ETR to be in the range of 24% to 26%. Profit after tax for the quarter stood at INR88 crores that is USD12 million, and that for the year stood at INR2,357 crores that is USD311 million. Reported EPS for the quarter is INR5.26 and that for the year is INR141.69. Operating working capital increased by INR444 crores, which is USD59 million, against that on December 31, 2021 mainly driven by increase in receivables and inventory.

Our capital investments stood at INR374 crores, which is USD49 million in this quarter, and INR1,466 crores which is USD193 million during the year. The free cash flow generated during this quarter was at INR482 crores, which is USD64 million. The free cash flow generated during this year was at INR1,157 crores which is USD152 million. Consequently, we now have a net surplus cash of INR1,545 crores that is USD204 million as on March 31, 2022.

Foreign currency cash flow hedges in the form of derivatives for the US dollar are approximately USD342 million largely hedged around the range of the INR76.5 to INR79.4 to the dollar, ruble 9.6 billion at the rate of INR0.90 to INR0.99 to the ruble. Australian dollar 4.4 million at the rate of INR55.38 to Australian dollar; and South African rand 122 million at the rate of INR4.83 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

Thank you, Parag. Good morning, and good evening to everyone, As Prasad highlighted, FY ’22 has been quite a challenging year, yet it is being fulfilling. We rose to the challenges and has been able to deliver a steady and sustained performance. We have revisited our strategy to cater for the new opportunities and mitigate risk. Our financial strength of strong balance sheet creates an opportunity for us to grow in the current business environments.

Let me take you through some of the key highlights of the year. One is strong growth across branded markets of India and emerging markets. Steady growth across generics markets, we regained milestone revenue of USD1 billion in North America Generics. Improved market share in most of our major markets. EBITDA and ROCE in the range of our aspirational targets, generation of strong free cash flow leading to net cash surplus of more than USD200 million, entered high growth space of medical cannabis business in Germany through acquisition of Nimbus Health, exclusive collaboration with Novartis for in-licensing of key brands in India market and significant progress made in our digitalization and sustainability journey.

Additionally, we continue to focus on productivity, while simultaneously making investments to strengthen our pipelines and capabilities. While our core business of generic and [Indecipherable] will continue to drive growth in the near and mid-term, that is what we call Horizon One, we are encouraged to witness several incremental opportunities such as scaling up for our existing small-size businesses and creation of new business models for a long-term growth that is for us Horizon Two. Our financial strength will allow us to grow and invest for both Horizon One and Horizon Two businesses.

Now, let me take you through the key business highlights for the Q4 and as well as for the full year of ’22. Please note that all reference to these numbers in these sections are in respective local currencies. Our North America generic business recorded sales of USD465 million for the quarter with a strong growth of 11% year-over-year and 7% on sequential business. On a full-year basis, we recorded sales of USD1 billion and USD3 million with a growth of 6% over the previous years. This growth was largely led by key new product launches such as icosapent ethyl soft gels and vasopressin injection. We were able to grow — also to grow market share for many of our existing product, which helped to partially mitigate the impact of the price erosion. We launched three new products during the quarter and overall 70 products during the year. We expect the launch momentum to further improve in FY ’23.

Our Europe business recorded sales of EUR53 million this quarter with a strong year-on-year growth of 17% and sequential quarter growth of 11%. On a full year basis, the sales were at EUR192 million and is grown by 8%, driven by new product launches. During the quarter, we launched four products in Germany, two products, each in Italy and Spain, and one each in UK and France. During the full year, we had 34 new launches across our market [Indecipherable]. We expect this strong launch momentum to continue in FY ’23.

Our emerging market business recorded sales of INR1,201 crores with the year-on-year growth of 36% and the sequential quarter growth of 4%. On a full year basis, emerging market sales had been INR4,567 crores and grew by 70%. We launched 16 new products during the quarter and 86 new products during the year, across various countries of the emerging markets. Within the emerging market segment, the Russia business in quarter four grew by 87% on a year-to-year basis and 62% on a quarter-to-quarter basis in constant currency.

In FY ’22 Russia business grew by 38% in constant currency. This strong performance in Russia was partially led by the divestment income of two brands and higher Q4 sales on account of stocking up, which we expect to normalize during the coming quarter. The current war situation in Russia and Ukraine, raised several business uncertainties and a significant fluctuation in the currency rates. We have managed this situation very well, and ensure the safety of our employees, continuity of the business operation, and financially securing the near-term with effective hedging.

Our India business recorded sales of INR969 crores with the year-over-year growth of 15% and sequential decline of 6%. On a full year basis, our sales was INR4,196 crores with the strong growth of 26%. During the quarter, we launched eight new products in Indian market. As per the archive report of March 2022, we are ranked number 11 on the months — monthly basis. India remains our priority market and we are committed to continue to grow this business at healthy rates.

Our PCI business recorded sales of USD100 million with year-over-year decline of 8% and sequential growth of 3%. On a full year basis, the sales were USD411 million with a decline of 5%. During this there has been normalization in the channel customers top level after the up in FY ’21. We believe that the customers [Indecipherable] are now debt to pre-COVID level and we should witness steadier growth in the business in FY ’23.

On the R&D front, our focus has been on building a global pipeline or value of healthy products including several generics, injectables, biosimilars. We are also selectively investing in few MC product candidates. While the number of products expanding in the current year has been slightly lower, however, we are on track with [Indecipherable] in FY ’23. Additionally, we have to test the leverage our balance sheet strength to invest in value assets in organic moves. I would like to remind that there are several factors which have an impact on the short-term performance of the company, including evolving geopolitical situation and higher commodity price. However, I’m confident that we will emerge stronger with every challenge. We do see opportunities in the current situation and are readjusting our strategy to cater the new opportunities for future growth. In the coming months, we will be holding our Investor Day, and take you the growth levers for Horizon One, Horizon Two and our approach and goals to our ESG.

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

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Ankush from Axis Securities. Please go ahead.

Ankush — Axis Securities — Analyst

Hello. Sir, my question is that about the US business. So how much sale is contributed by the new launches for FY ’22 and last year?

Erez Israeli — Chief Executive Officer

So the growth is achieved by two factors, one our new products and I noted two of them, icosapent and vasopressin as well as growth in market share of existing products and both of them contributed significantly to the growth.

Ankush — Axis Securities — Analyst

So can I say it’s USD1000 million sales in the US market for the full year that the new launches has contributed? How much sales new launches contributed, if you quantify sir? And how many new products that we are looking to launch next year?

G V Prasad — Co-Chairman and Managing Director

So overall, as you know, the price erosion in the US business is in double-digits and that’s more than offset by the new product launches and the share gain. So I can without disclosing any specific numbers, I can confirm that the new product launches would contribute in double-digit to the overall revenue.

Ankush — Axis Securities — Analyst

Okay, great. And sir, how many new products that we are looking to launch next year?

G V Prasad — Co-Chairman and Managing Director

So, the momentum will continue. This year, as we know in North America we launched 17 products. We expect to launch about 20 to 25 new products in FY ’23.

Ankush — Axis Securities — Analyst

Okay. So, the last one, how — what is the strategy for the Indian market, sir? How we are looking at the launch of a new product basically the growth in the Indian market, sir?

Erez Israeli — Chief Executive Officer

We will continue to launch similar numbers of products like this year. At the same time, the main growth in India will come first of growing of the brands that we are investing behind that will continue to generate the main growth in the markets. The second inorganic moves that we already disclosed as well as additional moves that we are working on as we speak. In addition to that, we will have a new product that will come as part of the price, which results in numbers that we have this year. In addition to that, this is what we call Horizon One. As part of Horizon Two, we are going to add additional moves in the area that we will disclose more during the Investor Day, but this will be in the area of activity that we have spots which is our outpatients initiative. As well in the areas of our nutrition, biologics activities, and digital. So overall, India as a major market for us and will continue to be a focus for many, many years to come.

Ankush — Axis Securities — Analyst

Thank you, sir. Thanks from my side.

Operator

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

Kunal Dhamesha — Macquarie — Analyst

Hi. Congratulations on the good set of numbers, and thanks for taking my question. So the first question is related to the COVID contribution for FY ’22. If you can give a broader idea of what contribution in terms of revenue was from the COVID or related products, especially on India side and emerging market side?

G V Prasad — Co-Chairman and Managing Director

So, the contribution, as you know, both India and emerging markets have grown this year in strong double digits. A good amount of this growth came from COVID. But even after excluding the impact of COVID portfolio both these markets still recorded double-digit growth. So overall I would say for the company as a whole, the contribution of COVID product sales overall is less than 4%.

Kunal Dhamesha — Macquarie — Analyst

Sure. And for the India market barring the inorganic activity which is when it happens, what is our organic growth target for FY ’23 and if you can just broadly give the growth drivers in terms of pricing, volume and I think new products we are already aware but would pricing be a very significant driver for us this year?

Erez Israeli — Chief Executive Officer

So, as you know, we are not guiding in that level of details, but we are expecting India to continue to grow organically in double-digit also next year.

Kunal Dhamesha — Macquarie — Analyst

Okay, thank you. And the second question is on the capital expenditure for FY ’23, this year we had some good amount of capex. I think for the Europe facility, but what would be the guidance for FY ’23?

G V Prasad — Co-Chairman and Managing Director

So for FY ’23 we expect the capital expenditure overall to be at similar levels around somewhere between INR1,500 crores to INR1,700 crores.

Kunal Dhamesha — Macquarie — Analyst

And I believe that, that would mean some additional facility, so for which geography and for which injectables or oral solids? Which kind of dosage form we looking at?

Erez Israeli — Chief Executive Officer

We are not anticipating a need for additional facility. The investment is primarily in the facilities that we have. FTO-11, which is — are coming up. The injectable facilities that we are investing in it, actually it worked a lot in the last couple of years, will be one place — the capex will grow, as well as in the biologics and digital. This will be the main focus of the investment.

Kunal Dhamesha — Macquarie — Analyst

Okay. Sure. Looking forward for the Investor Day. 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

Thank you for taking my question. Erez on the emerging market business. One, if I were to look at emerging market, ex Russia and Ukraine, that seems to have come off significantly with what we were doing in the first three quarters. I understand there is some amount of COVID contribution. Is it fair to assume that the run rate that we had done in this quarter is the base on which we will grow? Or is there any one-off or deferment of shipment that we should keep in mind?

Erez Israeli — Chief Executive Officer

No one-offs in those markets. This is, these markets are growing very, very well and will continue to grow in that level. Just if you recall, we discussed that a part of this strategy is to take our portfolio globally, and India is actually growing equally, especially on the injectable side, so India will continue to grow including the smaller markets based on the leverage of the portfolio as well as the local brands, but primarily the leverage.

Neha Manpuria — Bank of America — Analyst

Understood.

Erez Israeli — Chief Executive Officer

It Is indeed, nice contributors to the growth.

Neha Manpuria — Bank of America — Analyst

And on Russia, normalizing for the stocking up that we would have seen in the quarter. In the recent weeks have we seen any change in the demand patterns there or sales there that you would like to highlight or should we assume that Russia would remain on the double-digit growth part that we have seen in the last year?

Erez Israeli — Chief Executive Officer

So I believe that, that we will see some normalization of what we discussed. But overall we believe that Russia is an opportunity, especially as some of the players will not invest in marketing the products over time. And we will continue to operate this as usual, but we don’t know of course, what will be the impact on the overall economy of Russia, which is of course something that we’ll be able to see.

Neha Manpuria — Bank of America — Analyst

Fair enough. And my last question is on margins. So if I were to adjust all the one-offs, we did about 21% margin in the quarter. I understand there is Revlimid that is coming — generic Revlimid that is coming through, but whole margin excluding Revlimid. Is this the base or given the investments that we have planned? Do you think margin expansion from here would be tough ex-Revlimid?

Erez Israeli — Chief Executive Officer

We believe that the number is higher than the number that you mentioned. The right figure is actually 24%, and we believe that — we want to spend in the neighborhood of the guidance that we’ve given in the past, so we are comfortable with 24%-25% and we will give or take doing this area, as we want to pick whatever additional resources for investments in the future. So we are maintaining our ability and we believe that we can for both maintaining this level of profitability as well as to invest in the future especially now.

Neha Manpuria — Bank of America — Analyst

And just to clarify that you maintain the level of profitability even without — even excluding Revlimid?

Erez Israeli — Chief Executive Officer

We are not guiding with and without, because naturally. First, we don’t and second, I wish I knew exactly what will happen, and so you know that.

Neha Manpuria — Bank of America — Analyst

Sure.

Erez Israeli — Chief Executive Officer

But let’s say long-term, no matter what will be the scenario with Revlimid, we are absolutely aiming for this Revlimid.

Neha Manpuria — Bank of America — Analyst

Got it. Thank you so much, Erez.

Operator

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

Surya Patra — PhillipCapital — Analyst

Thanks for this opportunity, sir. Sir, first question is on the cost front. So despite all the challenges what we have seen, we have managed to deliver strong gross margins and all that. So going ahead given the — do you think any cost challenges that we will be facing incrementally given the supplies shortness that is likely to be seen given the Chinese lockdown and all that, that is one. And secondly, you have talked about the Phase I growth, what we have already seen and your designing and developing a Phase II kind of a growth phase for Dr. Reddy, with new product launches and speciality offerings and all that. So whether in the Phase II we’ll see a kind of a challenging phase in the initial period in terms of cost given the higher expenditure around the development and all that. So something on the cost front, how that the deal is shaping up and how that would be having impact on the overall margin for Dr. Reddy?

Erez Israeli — Chief Executive Officer

So like everybody else in the industry, we are facing some increase of course whether it’s commodity prices as well as in — it seems like it’s related to logistics, transportation, and stuff like that. And it’s unfortunately not the first quarter that we’ve seen that, it’s something that we gradually build up since COVID, but we absolutely saw and anticipating a situation like this also recently. We were able to mitigate most of it by, first of all, having a very effective supply chain so we are not dependent on any specific territories as whatever geography or specific vendors and we are able to maintain the competitive procurement. Our logistics is primarily done by sea, and this by air, and this is allowing us to mitigate some of those challenges. We are moving into over time to renewable energy, and this is mostly mid-to-long term mutual initiative, but this is enabling us also to deal with the energy, potential future challenges. So we may see certain, let’s say the cost may fluctuate from quarter-to-quarter, but long-term I believe that we are well set to mitigate the challenges.

Surya Patra — PhillipCapital — Analyst

Okay. Fine. Sir, the second question is on the US growth front sir, the — as you have been continuously maintaining that double-digit kind of price erosion that is the kind of a norm in the US business front. So, in the recent past, our trend towards US also has moderated because we are prioritizing the non-US markets for growth. So given that and the continuing price erosion scenario. So, is it fair to believe that ex of Revlimid, we may see a flattish kind of US growth front. Any sense on that, sir. I’m not asking about any guidance, but…

Erez Israeli — Chief Executive Officer

So, our US business will grow; and from time-to-time, we will have launches in addition to the other activities that we do and that’s what we also did in the last 11 quarters, so I believe that we grew nine out of the last 11 quarters and this is before even Revlimid, and this is likely to continue. We may — because of timing of those launches, we may see also fluctuation in the sale in the United States, but overall, I believe this on an annual basis we will grow in the stage in the coming years. In addition to that, we are investing and building platforms that are outside of the business model, that allow us also to grow long-term business. So we want to stay in America, we will believe in America; America will continue to be an important market for us. In the generic segment, likely it will not grow, like we will grow outside of the US, but other growth drivers that we are now working on will absolutely will continue to grow as in America in the same way that we are growing in other places long-term.

Surya Patra — PhillipCapital — Analyst

Okay. Just a last one, sir, on the inorganic growth front when you mentioned about that are you talking about only inorganic growth within India or it is even you are open for international activity also? In the areas that, if it is there, then the areas that you would be interested in, if you can just say something there?

Erez Israeli — Chief Executive Officer

We are open to inorganic moves into every one of our business. In terms of preference, India is absolutely a preference, and in terms of what kind of developments we prefer, all the acquisitions and other complementary moves to the spaces that we put as we are focusing our strategy. So that most of our inorganic activities were around product. We are naturally disclosing those that are relatively big, that we are all this time walking through certain portfolio cycle in inorganic and in licensing activities. In terms of, we have also referring not to make kind of a big acquisition, but rather the complementary that will give us the relevant capital and stuff like that. We want to remain primarily inorganic growth organization.

Surya Patra — PhillipCapital — Analyst

Sure. Thank you. Wish you all the best.

Operator

Thank you. The next question is from the line of Nikhil Mathur from HDFC Mutual Fund. Please go ahead.

Nikhil Mathur — HDFC Mutual Fund — Analyst

Yes, hi. Good evening, everyone. So my first question is around the Russian market. In line with the global sanctions that the West applied on Russia, we came across many media articles in which many global innovator companies, they are either withdrawing from Russian market or they are curtailing their operations there. So have you had any discussions in the procurement ecosystem in the Russian market, that this could be are fairly structural and substantial opportunity for Dr. Reddy’s given your legacy presence in the market. I look at the challenges currently, but still I mean could this emerge as a long-term full-year structural opportunity for the company?

Erez Israeli — Chief Executive Officer

So we see that as a, we would say that’s problem before us. We cannot discuss now in the specific discussions but it’s absolutely one of the avenues that we are discussing as we speak.

Nikhil Mathur — HDFC Mutual Fund — Analyst

Okay. Got it. And second question is on the broader US outlook. So two questions related to the US. One is on the opportunity next three years, excluding Revlimid? How do you see the addressable opportunity in terms of brands losing exclusivity next three years versus the preceding year period?

Erez Israeli — Chief Executive Officer

Without Revlimid, we boosted it in the same way that we saw it this year. We have in addition to this, as Parag mentioned, 20 to 25 new launches, which will not be a sizable as Revlimid, but will contribute to us. And I believe that the cost aversion will continue. So, in this way, I don’t think that things will change dramatically for us.

Nikhil Mathur — HDFC Mutual Fund — Analyst

Okay. Got it. And then my final question is related to the US market. Just now in one of the earnings call concluded for one of the peers, this question was asked, I’m just repeating that question again. Progressively quarter-on-quarter, we’ve seen the margins and the return ratios getting depressed in the US market, now with the added pressure of cost inflation. Any color can you give as to tell what time can the same continue before rationality kicks in? I mean, in the past, we have seen global companies withdrawing, but do you think that even the Indian companies, I mean, stood there at USD100 million, USD200 million kind of sales within the US. There also we might have to pull out or curtail their ambition in the US market, we can — where we slash rates and that’s been — has to be somehow mitigated?

Parag Agarwal — Chief Financial Officer

I will answer this question. I think the US market will always remain price competitive. There has always been pricing pressure. It’s not new and it will not end. It will continue. It depends on how well you choose your portfolio, how well you execute the risk and how competitive you are to continue to establish your presence there and we are facing a number of steps to strengthen our portfolio, lowered our cost, improve our market shares and we hope to continue to grow in the US.

Erez Israeli — Chief Executive Officer

The US will stay an important market for us. And, as I mentioned, we want to be stronger in the generic space, but we will be also working on moves outside of this area as well.

Nikhil Mathur — HDFC Mutual Fund — Analyst

I think, I mean, I kind of understand that. I think you have made your strategy quite clear. I was just hoping to get some comments on how do you see the competition reacting to the current state of affairs in the US market dynamic, I mean. It’s fine, I mean, because you want to reserve your comments. But…

Erez Israeli — Chief Executive Officer

I believe that it will continue. That’s how we see it. We don’t see a significant change coming up or a disruption to the current state at least.

Nikhil Mathur — HDFC Mutual Fund — Analyst

Great. Absolutely. That’s very clear. Thanks a lot.

Operator

Thank you. The next question is from the line of Prakash Agarwal from Axis Capital. Please go ahead.

Prakash Agarwal — Axis Capital — Analyst

Yes, hi. Good evening to all. Couple of questions. Sir, first on the COVID related products, you mentioned it’s 4% contribution, but is there any write-offs which we might have taken at the inventory level in the full year or the quarter?

Parag Agarwal — Chief Financial Officer

The — any inventory provisions related to COVID are — there are some write-downs, but they are not significant overall. And the overall inventory levels we are carrying for our COVID products are also not material. We are obviously stocked up adequately to meet any potential demand, but the overall levels are not material.

Prakash Agarwal — Axis Capital — Analyst

Okay. When you say not material, I would understand it would be under 1%?

Parag Agarwal — Chief Financial Officer

I wouldn’t put a number to it. It is not material in the overall context [Indecipherable].

Erez Israeli — Chief Executive Officer

Let us not confirm or deny that.

Prakash Agarwal — Axis Capital — Analyst

Okay, sir. Got it. And secondly on the proprietary business that we have built over years, I understand most of the assets are largely either outlicensed or a couple of them had been discontinued, so going forward what is the income stream for this? One is I understand the milestones, but we don’t have anything in the channel for future new outlicensing, would that be correct understanding?

Erez Israeli — Chief Executive Officer

On the specialty side, there’s nothing significant out there. There are some significant income streams which will continue in a single-digit million dollars, but beyond that there is nothing much to add.

Prakash Agarwal — Axis Capital — Analyst

Because if I’m not wrong this has contributed significantly in terms of outlicensing, which has flown down from gross margin to EBITDA and has contributed significantly at the margins, correct me if I’m wrong, and if not in future then given your commentary on the raw material prices and, etc, cost inflation, this would be an extra margin pressure point for us. Would that be correct?

Erez Israeli — Chief Executive Officer

Let me clarify. Maybe, first of all, on the specialty we have two parts. We have those products that we discussed, that were in the formal parts of products we took for the United States as we’ve stated rightly so, most of them were licensed or discontinued. As we speak, we are enjoying certain level of royalties and as well as future milestones that they may come and then there — it will be — we will enjoy the income of those milestone at the time that it will come, especially on projects like icosapent ethyl. We have also activities that are related MCV. This is what I mentioned in my script that we are selective in this — now in certain anti-cancer products as part of our subsidiary origin discovery and this is a — more of a long-term and that offering we are also licensing in collaborations with — in the United States with the partners and we are working both to license those platform as well as maybe one day in the future to built ourselves. In terms of contribution to the margin and stuff like that, I think we had indeed fee from licensing in Q2 and Q4, because there is no activity as such.

Prakash Agarwal — Axis Capital — Analyst

Sir, the last point was not clear. Would it impact some margins?

Erez Israeli — Chief Executive Officer

I don’t know in margin, they are not critical, therefore no impact on the margins.

Prakash Agarwal — Axis Capital — Analyst

I’m not sure I got it right, but okay.

Erez Israeli — Chief Executive Officer

Maybe I did not get your question, what effective on margin and by when is what you said?

Parag Agarwal — Chief Financial Officer

So, Prakash, what Erez mentioned is, basically in quarter four, there was no licensing income we have received, so the quarter four numbers are without any margin benefit.

Prakash Agarwal — Axis Capital — Analyst

Perfect. And that run rate is also like the INR69 crores is the ongoing proprietary sales, so that can continue?

Parag Agarwal — Chief Financial Officer

Proprietary plus origin, it is combined on our sales.

Prakash Agarwal — Axis Capital — Analyst

Okay. So that can continue and if there is lumpiness that might not continue?

Erez Israeli — Chief Executive Officer

There will be lumpiness. It will not be a smooth curve, because these are milestone driven being driven.

Parag Agarwal — Chief Financial Officer

Yes.

Prakash Agarwal — Axis Capital — Analyst

Okay. Got it. Fair enough. And lastly, sir, on the two good products that you have, so Vascepa, vasopressin, so these have seen market share inching up but not to the level that one could have expected. So is there a scale up issue or we expect or you have already achieved the fair share and we are not able to see in the — when we done it?

Erez Israeli — Chief Executive Officer

We believe that we have a good share within this product.

G V Prasad — Co-Chairman and Managing Director

Yes. And we can’t give that granular numbers to it.

Prakash Agarwal — Axis Capital — Analyst

Have you achieved the fair share, sir, on Vascepa, of 15%, 13% to 15%?

Erez Israeli — Chief Executive Officer

We have a very good share on this quarter.

Prakash Agarwal — Axis Capital — Analyst

Okay. And since it is a recent launch, vasopressin, this is still under [Technical Issues], would that be correct understanding?

Erez Israeli — Chief Executive Officer

Yes. We have also good share on this quarter.

Prakash Agarwal — Axis Capital — Analyst

Okay, sir. Thank you. Thank you, and all the best.

Operator

Thank you. The next question is from the line of Sameer Baisiwala from Morgan Stanley. Please go ahead.

Sameer Baisiwala — Morgan Stanley — Analyst

Hi. Thank you so much, and good evening, everyone. Most of my questions have been asked, but just a couple of them more. One is, what’s the current exposure to Ukraine markets? And are we holding any receivables over there?

Erez Israeli — Chief Executive Officer

So the level of exposure is not material and there is no any material adverse events or significant results which we anticipate in the future.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, great. Yes. Thank you. And as you mentioned a couple of times that for the US market, you are putting in some effort outside of the generic business, so can you elaborate on or is it the MC effort or is it something else?

Erez Israeli — Chief Executive Officer

We will elaborate more in the Investor Day. But we are, as we speak, exploring other channels, which are not exposed to the current business model in the United States. Of course, high level of price erosion that needs to be integrated by the products, so we are exploring and even dealing with the opportunities that, let’s say, are not part of the business model.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, great. So we will wait for the details. And the other question arises to efforts that you have put in India, one is Sputnik vaccine and the other is outpatient online healthcare platform. So if you can update us on both of these? Thank you.

Erez Israeli — Chief Executive Officer

Sure. Sure. On Sputnik, the main effort is on Sputnik Light. We got the approval for Sputnik Light as a vaccine and as a booster for Sputnik vaccine and we are now conducting a trial that we will have the result in next coming weeks as a vaccine for other products, for other vaccines in India. And we hope to obtain approval for that. This will allow us to compare from — on the current market potential if we get the approval.

The second effort that we did on Sputnik is that we repatriated the product to India. So all the activities on Sputnik are now in India. We are not dependent on Russia in any shape and form for that effort. Sorry, the second part on SVAAS, on SVAAS we are scaling up, we are adding more and more cities in the network and we need to scale up more. So far it looks very, very promising, but naturally it’s in early stage for this initiative. But it looks very, very promising and the service and the feedback so far is pretty good.

Sameer Baisiwala — Morgan Stanley — Analyst

Okay, great. Thank you so much, and we look forward to Analyst Day. Thank you.

Erez Israeli — Chief Executive Officer

Thank you, Sameer.

Operator

Thank you. The next question is from the line of Vishal Manchanda from Nirmal Bang. Please go ahead.

Vishal Manchanda — Nirmal Bang — Analyst

Thanks for the opportunity. With respect to the two brands that we divested in Russia and CIS, Ciprolet and Levolet, can you share what’s their contribution since this is based from the plans that will not recur going forward?

Erez Israeli — Chief Executive Officer

Sorry, contribution? I couldn’t catch the question?

G V Prasad — Co-Chairman and Managing Director

I think the contribution of the divestments in Russia, Levolet and Ciprolet, sale of these brands.

Erez Israeli — Chief Executive Officer

That will be about INR50 crores to INR60 crores per annum.

Vishal Manchanda — Nirmal Bang — Analyst

And even without these brands coming in contributing next year you would grow double-digit in these markets?

G V Prasad — Co-Chairman and Managing Director

Yes.

Vishal Manchanda — Nirmal Bang — Analyst

And just one more on Rituxan biosimilar, two things. One, when do you expect to file that? Second, whether you would — whether you are trying to do an interchangeable on that?

G V Prasad — Co-Chairman and Managing Director

Rituximab filing.

Erez Israeli — Chief Executive Officer

So we are looking for Rituximab assay in a potential 2024 event. I’m talking about calendar 2024.

Vishal Manchanda — Nirmal Bang — Analyst

And are you attempting an interchangeable on that?

G V Prasad — Co-Chairman and Managing Director

Interchangeability, yes.

Erez Israeli — Chief Executive Officer

Yes, of course.

Vishal Manchanda — Nirmal Bang — Analyst

So substitutable, is that right?

G V Prasad — Co-Chairman and Managing Director

This is biosimilar. This should be competed with the rest of the biosimilars of Rituximab.

Vishal Manchanda — Nirmal Bang — Analyst

Okay. And just one more on China. Can you share how many approvals have we got under the QC framework so far and how many of those have been commercialized?

G V Prasad — Co-Chairman and Managing Director

This year we received — we actually did filings for 11 products and we received three approvals during the year. And, overall, in FY ’23, we are expecting to launch about seven products.

Vishal Manchanda — Nirmal Bang — Analyst

How many, sir?

G V Prasad — Co-Chairman and Managing Director

Seven.

Vishal Manchanda — Nirmal Bang — Analyst

Okay. Thank you.

Operator

Thank you. The next question is from the line of Nitin Agarwal from DAM Capital. Please go ahead.

Nitin Agarwal — DAM Capital — Analyst

Hi, sir. Thanks for taking my question. Sir, my question is one on Voveran. What opportunities do we see on this product given the fact that this molecule has been under some growth pressures in the past?

Erez Israeli — Chief Executive Officer

Which molecule?

Nitin Agarwal — DAM Capital — Analyst

Voveran that we acquired from Novartis for the Indian market.

G V Prasad — Co-Chairman and Managing Director

Yes, Voveran.

Erez Israeli — Chief Executive Officer

So we see that as an important opportunity for us and first we will repatriate it to our Indian facility and we believe that our cost structure will allow us to be very competitive. And the second it’s in area of focus for us with the basics as well as cardiovascular, the area of chronic — the segments or disease was always the focus for us and this is an opportunity to bring a familiar brand to the physicians that we are visiting anyway and we believe that we will — our margins will enable us to even grow this molecule in the future.

Nitin Agarwal — DAM Capital — Analyst

Thanks. And secondly, Parag, in the press release you’ve called out product gross margin pressure, some amount of inventory provisions, can you just give us some sense on what would be in the quantum of this inventory provisions that would have hurt your EBITDA margins — the gross margin this quarter?

Parag Agarwal — Chief Financial Officer

So, overall, I would say the impacts on the gross margin is not significant, it will be less than 50 basis points on the inventory provision.

Nitin Agarwal — DAM Capital — Analyst

Okay. Thank you, and best of luck.

Operator

Thank you. The next question is from the line of Vinod B from InCred Capital. Please go ahead.

Vinod B — InCred Capital — Analyst

Hi. Most of my questions were answered. Just a follow up on Russia. So could you make a few comments about how the business has changed before the war started and after that, especially in terms of logistics, payment, etc? So are you able to get products across easily into Russia and how are you managing the payments mechanism out of Russia, etc?

Erez Israeli — Chief Executive Officer

Sure. So let’s start with the basic. We are shipping products to Russia and we are getting money from Russia and the logistic within Russia is similar to what it was before. We have to adjust our channels, airlines or other logistics means to shift to Russia. That — there will not be any issues with that. We just have to work on solutions for that. And for the payments and the stuff like that, actually we see — we saw no disruption as we speak with Russia. In terms of within the market, we don’t — we are not aware of anyone that actually left in the market, probably there would be less investments in the market, but we are not aware of anyone that actually left. So it changes little in the competitive landscape. It’s probably something that will happen, but as we speak we do not see it.

Vinod B — InCred Capital — Analyst

Okay. Got it. Thank you.

Operator

Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Amit Agarwal for closing comments.

Amit Agarwal — Head of Investor Relations

Thank you, everyone, for joining us today for the earnings call. In case of any further questions, please get in touch with the investor relations team. Thank you.

Operator

[Operator Closing Remarks]