DrReddy's Laboratories Ltd (RDY) Q1 2022 Earnings Call Transcript

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DrReddy's Laboratories Ltd (RDY 0.72%)
Q1 2022 Earnings Call
Jul 29, 2021, 8:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, good day and welcome to Dr. Reddy's Laboratories Limited Q1 FY '22 Earnings Conference Call.

As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes.

[Operator Instructions]

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

Amit Agarwal -- Head of Investor Relations

Thank you. 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 June 30, 2021.

Earlier during the day, we have released our results and the same are also posted on our website. This call is being recorded and, the playback and 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. 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. Parag Agarwal. Over to you, sir.

Parag Agarwal -- Chief Financial Officer

Thank you, Amit, and greetings to everyone. I hope you and your families are keeping safe and well.

I'm pleased to take you through our results for the quarter one of fiscal '22. It is yet another quarter of double-digit growth in sales. However, profits were impacted, due to higher price erosion in U.S., an increase in investment toward brand promotion, R&D and digitalization. We believe these investments are critical for the sustainable long-term growth of the company.

Let me take you through the key financial highlights for the quarter in a bit more detail. For this section, all the amounts are translated into U.S. dollar at a convenience utilization rate of INR74.33, which is the rate as of 30th June 2021.

Consolidated revenue for the quarter stood at INR4,919 crores, that is USD662 million, and grew by 11% on year-on-year basis and by 4% on a sequential quarter basis. The growth is mainly driven by new product launches, including COVID products, higher base business volumes, full quarter impact of portfolio acquired from Wockhardt in Q1 FY '21, and was partly offset with price erosion in some of our products, mainly in U.S. and Europe.

Consolidated gross profit margin for this quarter has been 52.2%, a reduction of 380 basis points year-on-year and 150 basis points quarter-on-quarter. Q1 FY '21 gross margins were high, due to higher export benefit and favorable product mix. The gross margins in current quarter were impacted, due to higher price erosion, primarily in U.S., and increase in inventory provisions for a few products. Gross margin for the Global Generics and PSAI were at 57.7% and 21.6%, respectively, for the quarter.

The SG&A expense for the quarter is INR1,505 crores, that is USD202 million, an increase of 18% year-on-year and of 5% quarter-on-quarter. The increase was on account of investments in brands in India and emerging markets, investments in digitalization, and annual increments. The year-on-year increase is also due to full quarter impact of the incremental expenses after the integration of Wockhardt acquired portfolio.

The R&D expense for the quarter is INR453 crores, that is USD61 millionsubsidiary crores that is USD61 million and is at 9.2% of sales. R&D spend increased by 14% year-on-year and 11% quarter-on-quarter, and is in line with the increase in development pipeline in our biosimilars and generics business, including development of COVID-related molecule.

The EBITDA for the quarter is INR1,019 crores, that is USD137 million and the EBITDA margin is 20.7%. The EBITDA margin was impacted, due to lower gross margin and higher investments in sales and marketing and R&D. We are confident that EBITDA margin would improve in the coming quarters.

Consequently, our profit before tax stood at INR743 crores, that is USD100 million, which is a decline of 16% year-on-year and an increase of 21% quarter-on-quarter. In 2021 [Phonetic], we received the final arbitration award pertaining to Xeglyze product in favor of Hatchtech for USD46.25 million. This led to an incremental charge of USD26.5 million for us, which was adjusted in our IFRS financial statements for Q4 and for the full year for FY '21 filed in Form 20-F as a subsequent adjusting event.

Effective tax rate for the quarter has been at 23.1%. We expect our normal ETR to be in the range of 25% to 26%. Profit after tax for the quarter stood at INR571 crores, that is USD77 million. Reported EPS for the quarter is INR34.34.

Operating working capital increased by INR1,189 crores, which is USD160 million, against that on March 31, 2021, mainly driven by increase in inventory and receivables, increase in receivables of primarily on account of a planned discontinuance of receivable discounting program in the U.S. Our capital investment during the quarter stood at INR320 crores, which is USD43 million. The free cash flow generated during this quarter was a net outflow of INR683 crores, which is USD92 million, mainly due to increase in operating working capital.

Consequently, we now have a net surplus cash of INR45 crores, that is USD6 million, as of June 30, 2021. Foreign currency cash flow hedges in the form of derivatives for the USD are approximately USD555 million, largely hedged around the range of INR74.7 to INR77.9 to the dollar, RUB7,725 million [Phonetic] at the rate of INR0.9921 to the ruble, AUD7 million at the rate of INR58.062 Australian dollar, and ZAR110 million at the rate of INR4.96 to South African rand, maturing in the next 12 months.

With this, I now request Erez to take through the key business highlights.

Erez Israeli -- Chief Executive Officer

Good morning and good evening to everyone. I hope you and your loved ones are keeping safe and healthy in these testing times.

While many of our key markets and businesses, including India, were severely hit by the second wave of COVID during this quarter, I'm pleased to have continued to deliver on our purpose of Good Health Cannot Wait by ensuring the continuity of our physicians and serving our patients with the relentless effort of our employees and business partners. We continue to make good progress on our strategy execution by enhancing our development pipelines of both small molecules and biosimilars, continuing with new products' launch momentum, gaining market share in key products, making inroads into newer sets of markets in Europe, driving productivity and accelerating our innovation agenda.

Today, we have successfully managed to expand our business model beyond the field through digital innovation and through demonstration, that is the launch of SVAAS [Phonetic], an app-based integrated OPD service delivery platform in India. This will provide simple and high-quality healthcare by addressing patient needs for doctors, pharmacy, laboratories and insurance, all under one roof.

This is an unusual quarter for us, as we faced price erosion pressure in the U.S., as well as decline in API sales, while the growth in both is expected in the next coming quarters, supported by scale-up in the recent launches, continued new product launch momentum and gain on market share.

Now, let me take you through the key business highlights of our business. Please note that all the reference to the numbers in these sections are in respective local currencies.

Our North America Generics business recorded sales of $235 million for the quarter, with year-over-year growth of 2% and sequential quarter decline of 1%. We launched four products in the U.S., including our Icosapent Ethyl Capsules, Ertapenem Injection, Sapropterin 100 milligram sachet, and Albendazole Tablets and relaunched Famotidine Tablets.

We also launched two products in Canada in this period. This quarter witnessed the normalized and progressive tender for retail GX and OTC business due to low COVID infection rates in the U.S. There is market share gain in our existing products and consolidation from new products, which was offset by relatively high price erosion due to an increased intensity of competition in sales and base products, and continued impact of lower number of elective procedure for health system business.

Our Europe business recorded sales of EUR45 million, with a year-over-year growth of 6%, driven largely by new product launches. The sales were flat on a sequential quarter basis. During the quarter, we launched four new products in Germany and two products in the U.K. We have expanded our presence with four new countries in Europe, namely Netherlands, Portugal, Slovakia and Czech Republic, with the launches of Azacitidine for injection in these markets. We believe that Europe will continue to be a good cost driver for us in the next few years, with the dual strategy of portfolio market expansion.

Our Emerging Markets business recorded sales of INR903 crores, with the year-over-year growth of 14% and sequential quarter growth of 3%. Within the EM market, the Russia business grew by 14% on a year-over-year basis and declined by 13% on a quarter-to-quarter basis in constant currency. Our business in many other focused markets like Brazil and China performed well. During the quarter, we launched 30 [Phonetic] new products across various countries.

Our India business recorded sales of INR1,006 crores [Phonetic] with a strong year-over-year growth of 69% and sequential growth of growth of 26%. This strong growth was supported by both COVID portfolio as well as good performance of the base business. Year-to-year growth also was positively benefit to a low base effect of Q1 in last fiscal [Phonetic].

During the quarter, we launched six new products in Indian market, including Sputnik V vaccine, COVID treatment drug of 2-DG, a nutrition product, Curhealth. As per IQVIA report on June 2021, we had grown by 19.4% on MAT basis, faster than the market growth of 14.5%.

On Sputnik V, the commercial scale up is in progress. We are working with RDIF for ramping up supply. We are also working closely with six CMOs in India for manufacturing readiness. We have been able to create a robust go-to-market infrastructure to supply the products reaching many of the patients [Indecipherable] across 80 cities and towns in India. We are also working on a singl-dose vaccine, Sputnik Light. As per the recommendation from SEC, we would leverage Russia Phase 3 trials for approval in India.

Our PCI business recorded sales of $102 million with a year-over-year decline of 10% and sequential quarter decline of 6%. This was largely due to higher sales base for business during same quarter in last year, owing to stocking activity of our customers as a response to mitigate the COVID-related potential disruptions. Considering the nature of this business, we expect some fluctuations in quarter-on-quarter sales, due to lapping in order.

On the R&D front, we continue to strengthen our pipeline of products with additional sets of biosimilar and thus improve our development pipeline, while we continue to make progress in the Phase 3 clinical trials of [Indccipherable]. We have also strengthened our small molecule pipeline for all of our markets and improving our execution with disproportionate focused support for value-accretive assets. During the quarter, we've had 30 drug manufacturing sites globally, including made in U.S. We've also filed 70 formulation products across global markets, including two ANDAs in United States. As of June 30, 2021, we had 93 cumulative filings pending for approval with the USFDA, which includes 90 ANDAs and three 5059(b)(2) NDAs.

In our Proprietary Products business, we continue to progress well with the pivotal registration for E7777 for CTCL indication. During the quarter, we out-licensed the development, commercialization rights of DFD-29 program, that is minocycline modified release capsules 40 milligram. Additional efforts are underway to globally monetize key approvals [Phonetic] and on-market assets.

While we are cautious of continuing on uncertain business environment by honing through global pandemic and an increased competition intensity in sales assignment [Phonetic], we remain committed to our strategy and believe that there are several levers ahead of us to deliver healthy and profitable rewards on a sustainable basis over the coming quarters and in the future.

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 Forum Parekh from Choice Institutional Broking. Please go ahead.

Forum Parekh -- Choice Institutional Broking -- Analyst

Hello, am I audible?

Amit Agarwal -- Head of Investor Relations

Yes.

Operator

Yes, ma'am, go ahead.

Forum Parekh -- Choice Institutional Broking -- Analyst

Yes. So, just wanted to know on the outlook of the North America business with this intense price erosion -- price competition. So, how do you look at it?

And second, I wanted to know like going forward -- how -- what would be the drivers for EBITDA margin?

Erez Israeli -- Chief Executive Officer

Yes. So, this quarter was a bit unusual one; that's what we call the [Indecipherable] as with some products, we faced price erosion primarily depending of share, while the big launches are coming up timely wise, later. For example, Icosapent, which is a very important launch, which we launched aiming [Phonetic] the last few days of the quarter. And naturally, for products like this, we will see realizations of its potential in the quarter to come, as well as other products.

So, I think, first of all, timing-wise, it was a bit unusual for us. And so, we are expecting the commercial to grow this year and as well as to come to the in the famous numbers that I want to be saying, so we're very still committed to our 25-25 EBITDA [Phonetic] as always also in the quarters to come. And in this respect, is it's a bit different. On the EBITDA, specifically, this quarter, it was a combination of the U.S. as well as the less API -- that normally when you have less APIs impacting the EBITDA, and this is also fluctuating from a quarter to quarter because of the order book, as well as COVID, and other activities like that.

I'm not concerned on that on the long-term basis.

Forum Parekh -- Choice Institutional Broking -- Analyst

Okay. And can you just throw some color on the North America side on the price erosion, how do you see it?

Erez Israeli -- Chief Executive Officer

It's something very similar to what used to be in the years ago when you're launching a product, especially product that we launched recently, recently means in the last 12 months. Then, a competitor is coming and you need to defend and it leads to a price erosion. So, it's not unusual situation. And naturally, this will continue to be also in the future. So, I don't -- I cannot say something that is unusual for us in North America, it's the normal business model in this country.

Forum Parekh -- Choice Institutional Broking -- Analyst

Okay, thank you. I get back in the queue.

Operator

Thank you. 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

Thanks for the opportunity.

Sir, just on the aspect related to subpoena issued by the U.S. first, would like to understand in terms of the number of healthcare professionals involved as per the complaint by the anonymous person?

Erez Israeli -- Chief Executive Officer

So, first of all, it's not a new thing. We reported on it in November of last year. And as we are trading in the U.S., we need to submit this information to the relevant agencies, and that's what we did, and this is a [Indecipherable] deposit. This is still under investigation, like it's not done and those investigation normally takes time. So, I don't envision an immediate action in this respect. Once the investigation will come, we will share it with the authorities and address relevant processes.

Tushar Manudhane -- Motilal Oswal Financial Services -- Analyst

Okay. And secondly, just on this PSAI gross margin, while the sales would have been impacted because of the inventory buildup for the previous quarters. But, how do you look at the gross margin for this business going forward?

Erez Israeli -- Chief Executive Officer

So, the gross margin in API, because of the nature of relatively high level of fixed costs. When you have less sales, normally, you see it also in the margin that fits. So, once that settles, the sales will go up, also the margins will go up. I don't see any specific issue. We did have some price decrease in some molecules. So, on those molecules, we will see a less ability. But, on the other hand, we are going to launch others.

So, overall, I believe very much in this business, while we will continue to fluctuate. We will have good quarters and less good quarters. It very much depends on the procurement patterns of the customer.

Tushar Manudhane -- Motilal Oswal Financial Services -- Analyst

All right. So, that answers my question. Thank you.

Operator

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

Damayanti Kerai -- HSBC Securities and Capital Markets -- Analyst

Yes, hi. I hope I'm audible.

Operator

Yes, ma'am.

Damayanti Kerai -- HSBC Securities and Capital Markets -- Analyst

Okay. Thank you for the opportunity.

Sir, my question is on Russia and CIS business. So, if I understand correctly, fourth quarter is the lowest seasonal quarter for us. But, despite that, we continued -- we saw. I'll say, notable sequential decline in both Russia and CIS. So, can you talk a little bit more there like what are the regions due to which we are facing sales declines?

And is it something specific to Dr. Reddy's or it's something marketwide phenemona, which is impacting sales in Russia and CIS?

Erez Israeli -- Chief Executive Officer

[Technical Issues] In Russia, there is a timing of the tenders and the bids on biosimilars. So, those normally are coming in specific quarters and according to the buying patterns of the government in Russia. So, that's why we believe we have the most of those sales of this kind of products. In certain quarters, we will see sequential decline. But, this is more of a timing issue of the tenders of these products, while actually we outlined on both the retail as well as the government business, meaning the wholesale business.

Damayanti Kerai -- HSBC Securities and Capital Markets -- Analyst

Okay. So, how should we expect growth for this part of the business in a normalized way?

Erez Israeli -- Chief Executive Officer

We should see growth like we have in last year. In general, the emerging markets will continue to grow [Technical Issues] not necessarily every quarter, but we'll also have declines also in the future.

Damayanti Kerai -- HSBC Securities and Capital Markets -- Analyst

Okay. That's helpful.

And my second question is on Sputnik roll-out in India. So, depending on the clarification which you might have got from the CMOs, by end of FY '22, like how many doses you are confident about distributing in India or how do you see the roll-out of COVID vaccines in next, say, 12 to 15 months?

Erez Israeli -- Chief Executive Officer

We will have somewhere between September and October, November, we will see the products coming off of India. We will receive Sputnik V and we hope also, as said, [Technical Issues] quantities for the Indian market in that respect. Of course, this also depends on the what will happen in India, in terms of vaccinations by other, etc. But, we should have a sufficient supply [Technical Issues].

Damayanti Kerai -- HSBC Securities and Capital Markets -- Analyst

Okay, sir. Okay. Thank you for your answers. I'll get back in the queue.

Operator

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

Prakash -- Axis Capital -- Analyst

Yes, hi, good evening, and thanks for the opportunity.

Sir, I mean, you mentioned about PSAI. I mean, the voice was not clear. But trying to understand, we had stabilized this business and seen a 30%-plus gross margins for at least last year. And then, again, we saw this volatility coming for this quarter. So, how do you see -- I mean, I understand you mentioned about why this quarter was affected, decrease in sales, volume and pricing.

But, do you think it's a one-off and how do you see the rest of the year and year after, given that there is a heavy investment in the DMF and you spoke about last quarter on the CRO that you are starting Aurigene. So, what is the update there and what is the outlook, sir?

Erez Israeli -- Chief Executive Officer

So, the outlook is positive. We believe in this business. It's going to grow. There is, indeed in the last few quarter, fluctuation during quarters in which people took more and the people that -- and the quarters that people took less. In the last two quarters, they are taking less. I agree with that. Overall, the product, especially, the future portfolio looks very promising. Specifically, I think what happens to us in this quarter is that some key products -- we missed certain, let's say, pattern orders because of the sequence and part of it was pricing as well. So, I see that more of a short-term issue rather than long-term issue.

On the scale up of the CDMO and stuff, we are very much on track. And I very much believe in this business right now, it's relatively small -- Growing but small in terms of impact on the entire company. So, most of the activities of the API or other, let's say, they are generic API activity. And they are impacted by the patterns of those procurement.

Amit Agarwal -- Head of Investor Relations

Prakash, you are there?

Erez Israeli -- Chief Executive Officer

Is it OK? Hello?

Prakash -- Axis Capital -- Analyst

Yeah. Sorry, I think I was on mute. I asked that do you think this is a one-time blip and you back to normalcy from Q2 onwards, or you will take time to come to normalcy?

Erez Israeli -- Chief Executive Officer

I don't think it's a one time, but I'd say. At some of these products, if the price went down, it will naturally continue. But, but I'd say, we are going to see a growth in the API for sure for the year. But, it may fluctuate also during FY '22 from quarter to quarter. So, I cannot say that it's a one time, but the direction is possible if it's going to grow.

Prakash -- Axis Capital -- Analyst

Perfect. Great.

And second question, sir, on the EBITDA bridge. So, last year, we were at healthy EBITDA margin of 24%, 25% and we started this quarter with soft U.S. business, soft PSAI business, resulted in drop in gross margins and EBITDA margins. So, how do you think -- by when would you be able to come back to your 24%, 25% mark? I mean, would it take couple of quarters or it will take next year too?

Erez Israeli -- Chief Executive Officer

No, it will come fast. And as you know, we cannot give guidance. But, let's say, from next quarter, you're supposed to see something similar to what you used to see from products before.

Prakash -- Axis Capital -- Analyst

Yes, yes, not looking for guidance. Sir, I just wanted the drivers which will lead to that. So one is clearly the Vascepa launch, which will help. But, what are the other big drivers?

Erez Israeli -- Chief Executive Officer

Yeah, more than fair.

The drivers will be, first, the realizations of the full value of the products that will be launched in the U.S. This is missing in this quarter. The second is that a scale-up of some of our API activities. Third, you are going to see more and more growth and more impact of some of our -- if you wish -- more top line in the company as the realizations of higher growth in general, in EM, and as well as in India. And last but not least, we are -- this was a quarter in which we have some -- it was not significant, but some items that were impacted, whether it's COVID-related, it was a quarter in which two months out of the three, we have -- we were under what, wave two in India and has to deal with the logistics of it as well as the sales and co-pay. So, all of these are supposed to help and I'm very confident that you will see the margins that we have discussed. And my key KPIs that I'm always discussing in the meeting, for long term, the 25-25 is still valid [Indecipherable].

Prakash -- Axis Capital -- Analyst

Okay, sir. Great and thanks.

Operator

Thank you. The next question is from the line of Sriraam Rathi from ICICI Securities. Please go ahead.

Sriraam Rathi -- ICICI Securities -- Analyst

Yes, thanks for the opportunity. Sir, firstly on, I mean, subpoena issued by the SEC. So, I mean, just wanted to understand what is company's stand on that in terms of what we are thinking? And secondly, I mean what could be the worst outcome of that in terms of, I mean, what kind of impact it can have is something goes negatively against us?

Amit Agarwal -- Head of Investor Relations

Can you repeat the question. The line is not clear, Sriraam. Yes, sorry.

Erez Israeli -- Chief Executive Officer

Sorry about that. No problem, sir. I'll just repeat. So my question is regarding the subpoena issued by SEC. So, what is company's stand on that in terms of what are our thoughts? And at the same time, I mean, what could be the worst outcome if something negative happens in terms of outcome? So, normally when you have a complaint in a market, you need to submit this information as per the guidance to the agency in the U.S., as we're trading in the U.S. and this is what we did this time as well. The processes that we are going through are investigations, are self investigations by kind of outside counsel firm that is investigating and give the outcome of this investigation. You are submitting it. And then, you are discussing it with the relevant authorities. The potential outcome can be nothing or can be certain. It seems that the company needs to do. At this stage, I think it's too early to assess. I don't envision any immediate action or any immediate activity that we need to do. The process is going to take probably for the foreseeing time like a year, maybe more, I don't know.

Sriraam Rathi -- ICICI Securities -- Analyst

Okay. Got it. And secondly, one question on the gross margins. So I think in the initial comments, it was mentioned that there were some inventory adjustment also. Is it possible to share how much that impact would have been?

Parag Agarwal -- Chief Financial Officer

The inventory, Sriraam, I don't think we can share the numbers. But, there is some inventory provision that typically happens every quarter. This quarter we saw a little higher because of certain quality issues and slow-moving inventory, which is normal in our industry. We do expect it to normalize in the next couple of quarters.

Sriraam Rathi -- ICICI Securities -- Analyst

Okay. Okay. So, generally like we used to be in the range of 53% to 55% gross margins. So, that is a fair number to look at for the future quarters or so on an aggregate?

Parag Agarwal -- Chief Financial Officer

I would not like to give any number. As you know very well, if you look at our data for the last several quarters, our gross margin fluctuates quite a bit. It is clear that, in this quarter, our gross margin has been at the lower end of that range. And as you know that primarily because of the price erosion that we saw in North America and also because of slightly higher inventory provision. Going forward, there are a number of levers that should improve the gross margin, like it is said, the full impact of some of the recent launches in North America would push it up; as we grow sales, which we have been growing for a while in the branded markets, that will give us better leverage; also, as the PSAI business improves, that will impact gross margins positively. At the same time, there is a lever that will bring it down slightly, which is the increase in the commodity and solvent prices.

So, overall, we expect that the levers, which are going to put an upside pressure to gross margin are more compared to where we are today. But, I don't think I can give a range on gross margin.

Sriraam Rathi -- ICICI Securities -- Analyst

Okay.

Erez Israeli -- Chief Executive Officer

It's fair to say that we will stay in the neighborhood of where we are. If you recall in previous meetings, if there will be a great business that will come. For example, I know it's hypothetical. But, if $1 billion business will come at 49%, then a great EBITDA we will not say no, because of demand. So, what should guide us is naturally the EBITDA. But, in terms of expectation, yes, I think it's fair to say that we are working for improvement.

Sriraam Rathi -- ICICI Securities -- Analyst

Okay, sure. Got it. Got it. That's it from my side. Thank you.

Operator

Thank you. The next question is from the line of Nithya Balasubramanian from Bernstein. Please go ahead.

Nithya Balasubramanian -- Bernstein -- Analyst

Thank you. So a question on Sputnik V. So, one of the challenges that we have been reading about recently is the scale up in the second -- the challenges with the scale up in the second vector. And we understand that far fewer doses of the second dose has been imported as well. Is this likely to remain a challenge or do you have visibility on when this is likely to improve, so that you're able to vaccinate more people?

Erez Israeli -- Chief Executive Officer

Firstly, this is correct. The main challenge is the supply of the second formula; it was because of the formula size and as well as the allocations that comes from Russia as they have their own, let's say, pandemic and they have their allocations consideration. In our discussions with them, we are supposed to get it in August. I cannot confirm it because there were delays in the past and they might continue in the future.

I hope the real solutions will come when there will be a ramp up out of India as well as the potential approvals of Sputnik Light. This is the two mitigations that we can have in a case if the challenges of the formula B will continue.

Nithya Balasubramanian -- Bernstein -- Analyst

Got it. So for Sputnik Light, is there any requirement from the DCGI for you to conduct any sort of study in India?

Erez Israeli -- Chief Executive Officer

They will accept the trials, the results that will come out of Russia. And maybe, once they will review this item, they may ask for more. But, at this stage, we are planning to submit the data that will come out of Russia.

Nithya Balasubramanian -- Bernstein -- Analyst

Got it. One last one, on your -- you mentioned that your SG&A spend in India is now higher because you're pushing some marketing activities, some digital solutions, et cetera. So is this level now likely to stay? Is this the new normal?

Erez Israeli -- Chief Executive Officer

In India and emerging markets, yes. But, it also supported well the sales and the profit. So, this is a very healthy business. It is growing and it's paying for its investment, plus which drives a return on investment and great EBITDA. So, this is likely to grow. And more than that, this is the main mitigations on those businesses that are not giving us, let's say, [Indecipherable] fluctuate like the U.S. business. So, this is absolutely within the strategy and it will continue.

Nithya Balasubramanian -- Bernstein -- Analyst

Got it. If I might squeeze one last one, and so if you look at Amarin's commentary on their product, [Indecipherable] they have been talking about how the product has been able to retain market shares because the out-of-pocket expenses for the patient is actually lower with the brand compared to the generics. Do you see this as a challenge for Dr. Reddy to gain market share in the market?

Erez Israeli -- Chief Executive Officer

I cannot comment on those -- on this stuff, I can tell you that so far we did not see challenge to get market share.

Nithya Balasubramanian -- Bernstein -- Analyst

Thank you so much.

Operator

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

Kunal Dhamesha -- Emkay Global -- Analyst

Hi. Thank you for taking my question.

So, first question on the U.S. business, if you can provide, what proportion of U.S. business in this quarter was from the new product launches? And what would be our, let's say, target going forward on an annual basis, where we are targeting x proportion of the revenue, that should come from the new product launches? That's the first question.

Erez Israeli -- Chief Executive Officer

Yes. So, first of all, we're not targeting the proportions, we are trying to control the potential of pipelines and some products will be very big. Then, they will have big proportions [Indecipherable] it will be more impacted by new products in adults as some of the products that we are announcing are bigger than, let's say, what we had last year. And there will be, that it will be less. So, we are not targeting specifically percentage as such. The way we are looking at this business -- that we look at this business, whether it was the right choice for the shareholders in terms of return on investment, in terms of risk management, etc.

And what we are doing with the U.S. portfolio is that, I mentioned in many discussions before is primarily to leverage it cross-market to launch it in other countries, in Europe, emerging markets, etc, and reach the economy of scale. So, to make the -- to address directly your answer, this year, the proportion will be higher than other years, but it's not necessarily going to be in the [Indecipherable] etc. It very much depends on the compositions of the new products, the markets that will gain in potential business.

Kunal Dhamesha -- Emkay Global -- Analyst

Sure. Thank you. And the second question is, what's the rationale behind discontinuation of the receivables factoring?

Parag Agarwal -- Chief Financial Officer

Yes, I can explain that. We had -- basically the rationale is the narrowing of the interest differentials between U.S. and India. As you know, the interest risk used to be much higher in India. And therefore discounting of receivables in the U.S. and being able to take advantage of the arbitrage was a lever that we were using. The narrowing of the interest rate differential that arbitrage was no longer making sense, and therefore, we have decided to reverse that.

Kunal Dhamesha -- Emkay Global -- Analyst

Okay. Sure. Thank you.

Operator

Thank you. The next question is from the line of Anubhav Agarwal from Credit Suisse. Please go ahead.

Anubhav Aggarwal -- Credit Suisse -- Analyst

Yes, hi, guys. Good evening. Just one question from my side. I just want to understand the SG&A little better. So sequentially from March quarter to now, we have seen almost an increase of INR100 crore in the SG&A expense. So, you guys mentioned three reasons. Personnel costs, you guys report. So I can see only out of INR100 crores, 25% to 30% came from personnel cost increase. Also other two factors, I just wanted to check, in a quarter which was driven by COVID wave impact, which are so strong starting from April, May, etc. I am not able to understand even in our -- some of the highest market, Russia, the impact of COVID was very much there. So in this quarter, when you talk about higher marketing activities, resulting in higher SG&A, can you just take me through this balance 70% of the incremental where exactly it came from?

Parag Agarwal -- Chief Financial Officer

Sure. So, first of all, in this quarter, while we had COVID impact, it was in India, not a lockdown as severe as the last lockdown. And we did have a combination of -- in May and June in particular, a combination of physical costs as well as digital cost. That's one. The second is that we are investing behind a number of new brands. For example, Celevida in Nutrition space, we have launched in June, a brand called Curhealth, which builds immunity and we have got very encouraging response from the consumers initially.

So, we are investing behind our OTC business. We are also expanding into rural areas where we have seen strong growth. So,there are a number of growth drivers, which require investment, and we are not shying away from investing in India and Russia. And this is borne out by the growth profile of these businesses. If you see, in this quarter, India has grown at a very strong rate. Even if you discount for the low base in India, even sequentially, we have recorded 26% growth and similarly in emerging markets. So this is -- this investment, we firmly believe is good cholesterol and we will continue to invest in good cholesterol.

Anubhav Aggarwal -- Credit Suisse -- Analyst

Okay, that's helpful. And second question was on the Russian vaccines. So effectively, supplies will only ramp up for us in December onwards, etc. So, for the export market, have we progressed further with our contract with RDIF, any progress over there which has happened?

Erez Israeli -- Chief Executive Officer

So, we got rights also for the other markets. At this stage, any quantities that will come will come to India. And right now, this is our priority. And I hope by [Indecipherable] we will get also in August, but we cannot -- of course, we do not have the confirmation for that as of yet. And everything that is related to export will be after we will satisfy the needs of India. So, yes, absolutely, the intent is that if this will ramp up, it will be also [Indecipherable] but at this stage the agreements and activities that we have are contracted.

Anubhav Aggarwal -- Credit Suisse -- Analyst

Okay. Thank you.

Operator

Thank you. The next question is from the line of Neha Manpuria from J.P. Morgan. Please go ahead.

Neha Manpuria -- J.P. Morgan -- Analyst

Yes, thanks for taking my question.

My first question is on the India business. You just talked about investing in nutrition OTC expanding into rural areas digital. If you could just give some color on when we would start seeing the benefit of this? And a related question on that, how much do you think we will have to spend to scale up these businesses, particularly something like OTC and nutrition businesses?

Erez Israeli -- Chief Executive Officer

So, first, India is already financing its growth. So we are growing in profit in India. I know that we are setting the SG&A line, but in terms of profit, India is financing its growth as well as the emerging markets. The specific investments in the brand, when it's a new brand you normally see it profitable in the second year. This is the experience in India, and this is going to be also the case in the new launches that we have. The activities that are related to more geographic spread as well as services, we, of course, will see the benefit immediately, as it is as we are taking important products and expanding into other areas. So that part of the investment is actually paying off nicely, and I will see as well as the new design in India is above our average-given the average, let's say, I'm mentioning in our previous discussion.

Parag Agarwal -- Chief Financial Officer

And I would also add that in many of these brands, the investment is in digital marketing which compared to the earlier mass media model is much more efficient and effective, and that leads to a much earlier breakeven, like it is said, typically you would have -- if you start paying back from second year itself a new brand.

Neha Manpuria -- J.P. Morgan -- Analyst

And in terms of new launches, do we -- just wanted to understand how many brands that we have -- do we have in the pipeline for nutrition and OTC, like you mentioned new brands would acquire new investments. So, in that context, what is the planned launch pipeline that we have for these two segments?

Erez Israeli -- Chief Executive Officer

So, the bigger brands are actually brands that we already launched.

Neha Manpuria -- J.P. Morgan -- Analyst

Okay.

Erez Israeli -- Chief Executive Officer

And there is an opportunity to scale them up and to create economy of scale. There are sales in areas like Rx sales, like in OTC, [Indecipherable] in which we are launching new brands in order to enhance our presence in that area. So prevention, wellness, OTC is another part of the above strategy as well as our traditional [Indecipherable] and now we moved also in this respect to -- to the digital therapy. So, more and more, we will expand our footprint in India in that respect. And some of it will be new one, some of it will be leverage of things that we did in the past. Overall, the profit of India will go up from year-to-year, so it's given -- and it will pay for those investments that we will take then two years to materialize it.

Neha Manpuria -- J.P. Morgan -- Analyst

Understood. And second, on the API supply for our generic Vascepa launch, just wanted to get a sense on, when do you think we will get to our fair market share for the product? And do you -- is API anymore a concern in terms of our ability to ramp up this product, given the supplies from partners?

Erez Israeli -- Chief Executive Officer

At this stage, I don't see concern with API.

Neha Manpuria -- J.P. Morgan -- Analyst

Okay. And when do we think we can get to a fair market share in your assessment?

Erez Israeli -- Chief Executive Officer

I don't know what is fair, fairly clinical definition. I think that, for example, in Q2, you should see different results that in the contribution of this product as we launch the product in the last few days of the quarter, and then surely Q2, for example, we will see impact of the current quarter..

Neha Manpuria -- J.P. Morgan -- Analyst

Understood. Thank you so much.

Operator

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

Saion Mukherjee -- Nomura -- Analyst

So, just on the U.S. market, is it possible to quantify the extent of price erosion that you've seen in the base business is in single-digit, double-digit, sequentially how that has happened? And what is the concentration that we have in the U.S. today in terms of the top two products, three product, if you can throw some light? And also some color -- I think you mentioned about OTC picking up. So if you can give some color on volume, so I understand price is lower, but how has volumes shaped or have you been able to defend volumes for all our products or there has been loss of market share as well?

Erez Israeli -- Chief Executive Officer

Yes. In terms of -- let's start with market share. First of all, we are growing market share. So we are going in general, and how they [Indecipherable] for that is about 35%, if I remember correctly -- in the United States, out of the -- of this. So it's a kind of -- this is the [Indecipherable] in case it's about the feedback that's in.

In terms of value of price erosion, we are not sharing these kind of numbers in these kind of meetings. For this product, we need to defend. Normally, it's double-digit for these two products. But the overall impact on the basket can fluctuate depends on the -- of course, on the value of these projects [Indecipherable].

In this quarter, the main thing that's happened to us, and that's what I said in the beginning, is that we got what we call the sting, but not the honey. We did not -- we've got the impact of price erosion, but we did not get the impact in the markets and stuff. As most of the levers for us to grow will come primarily from starting in Q2. That's why I believe that on semester 2 we will resemble better, let's say, the -- [Indecipherable] in United States and moving forward.

Saion Mukherjee -- Nomura -- Analyst

Okay. Just -- I mean this number you said top five is 30%. Is that right? Can you just confirm that please?

Parag Agarwal -- Chief Financial Officer

Yes. Around that.

Erez Israeli -- Chief Executive Officer

Around this number, give or take.

Saion Mukherjee -- Nomura -- Analyst

Okay. And secondly if I can ask about Sputnik V, you mentioned, I mean, given that the vaccination pace in India has picked up and we have a contract for 250 million dosage, do you think -- and given the pricing environment, do you think financial -- from a financial perspective, it's a meaningful opportunity?

Erez Israeli -- Chief Executive Officer

It can be meaningful. And if all the things will be -- and the reason that something it can, not because I'm doubted the opportunity, the opportunity is fake, it's more of the way it will play out in terms of supply out of Russia ramp up vaccination programs in India. There are many, many COVID waves that hopefully for India, I will not comment on the wave-2 again, and wish it for India as a country. So there are many, many factors in that respect. Plus, we need to remember that the antibody eventually for even for the people that took vaccine eventually are going down, and we do see the impact in countries that got vaccination six months ago, and now there is a pickup of patients again, even in a certain area. And so what we are doing is, we're trying to move on [Indecipherable] dimensions to address scenario. So, for example, we are working on adults business with the Sputnik, we are working on Sputnik Light. We are working on adult product cases.

And in our portfolio, there is -- beyond Sputnik, we have other products. We are working to qualify the Indian operations in the case that we can use them in India. We are working on them in [Indecipherable] we can do export in the places we will be. So I don't know exactly how the future will fall, but we are arranging for us enough. Let's say, we are kind of ramping up our infrastructure, reduced registrations across our success era to allow us to address it when there is a need for it. That's the way we look. So it can be a important -- significant opportunity, but it can be also less than that. This is a kind of unpredictable situation, and especially when it's related to supply and difference.

Saion Mukherjee -- Nomura -- Analyst

Okay. And finally, if I can ask on R&D, as you mentioned about biosimilars, I just wanted to check like, is there a very steep increase in R&D spend on biosimilars? And how should we think about -- are there any products which are going into major clinical trial over the next 12 months? Should we expect this to move higher? If you can guide on R&D spend, how should we think about it, particularly with respect to biosimilars? And your thought in general, because the health has been limited success in this space, so I mean what are your thoughts on increasing spend on at this high-risk area?

Erez Israeli -- Chief Executive Officer

So, we are increasing spend, I cannot call it steep. I can call it, an increase of spend. And we have starting price, and it is part of our increase in R&D this year of biosimilars. I think, overall, in price for this year will be four products, including rituximab. We are financing it by increasing of sales of biosimilars, especially in emerging markets, and the main market for it is Russia.

And the main difference is that this time the other products will be aimed for first two markets, unlike the products that we came behind. And there is, I believe, a significant opportunity and that's especially in our market. So, I continue to -- with the strategy of leveraging those countries in this area and which -- as part of our hospital strategy, those products are normally hospital products. And they will be sold on this infrastructure as stand-alone, as well as finding partners for markets like the United States as long as United States is having own business model. So, I do believe in these opportunities, absolutely the investment in this stage continues to be an investment in this stage, but limited in nature.

Saion Mukherjee -- Nomura -- Analyst

Okay. Thank you.

Operator

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

Sameer Baisiwala -- Morgan Stanley -- Analyst

Thank you very much, and good evening, everyone. Sir, the first question is on the Digital Health tech efforts that we're putting in, and the app that you announced having launched today. So just thinking about it, what is competitive advantage in getting into this venture, your right to win versus few others who have launched their health tech app like hospital chain or online companies e-pharmacy, et cetera. So just your thoughts on what's your end game over here?

Erez Israeli -- Chief Executive Officer

Thank you for that. I see this as a very important development. Firstly, it's not an app. It is a service that -- OPD service that we are giving to people. So, people that -- in this case, it's a collaboration, we will get under and ensured service their needs under one roof. And meaning that our -- we are going to provide them the healthcare that they deserve in a much better service and much cheaper than they used to -- to get by the current alternatives they have.

The beauty of that is it's a end-to-end platform in which comprise the physicians, the insurer, the pharmacies, the leverage information and everything under one roof. And I think it's -- if you wish it's outpatients' lag, I used to get when I lived in America, and it's something that doesn't exist definitely in India and we are very happy to be and to do this. So it's not a normal app, it is absolutely a service, outpatient services that exist in other countries and they are not so much in India.

Sameer Baisiwala -- Morgan Stanley -- Analyst

Fair enough. And thanks for this. But I'm just wondering what synergy does it have with the -- with your traditional core business and what's your end game? I mean, would you keep it, develop it, or just your thoughts on this?

Erez Israeli -- Chief Executive Officer

We absolutely will continue to develop it. We just don't see it. But the way I see the things are involved in India, it will not be about necessarily going -- building on those with the branded generics, but companies we will have to grow into different ownership of the stakeholders and this is what we are aiming to do here.

Parag Agarwal -- Chief Financial Officer

So, our aim is to create an ecosystem, and I think those companies that have -- the first movers increasing an ecosystem linking all the players in the healthcare will definitely have a competitive advantage.

Sameer Baisiwala -- Morgan Stanley -- Analyst

Okay. Excellent, sir. Second question is just on Vascepa. I know you've answered. I'm looking at four-week data that is available now in IQVIA and your market share is under 3% for drug which pay you the second player, and it's 90% still branded. So why is the market share ramp up so slower here and how should it pan out?

Erez Israeli -- Chief Executive Officer

Normally, when you launch, people are taking the relevant stock and trying to do it. So, our sales is not in accordance to the IQVIA ramp-up.

Sameer Baisiwala -- Morgan Stanley -- Analyst

Sorry, sir. I missed it. Can you speak a bit louder?

Erez Israeli -- Chief Executive Officer

What I'm saying, our sales are not working in according to the ramp-up of IQVIA

Sameer Baisiwala -- Morgan Stanley -- Analyst

Oh, I see. Okay, got it.

And sir, just a clarification for Sputnik V. When did you say your supplies would be picking up a lot more from the Indian manufacturer, was it September, October, or December, if you can just clarify on that?

Erez Israeli -- Chief Executive Officer

In September to November, because we have six of them and each one of them has different dates. Some can be as early as August. But, it will be fortunately worth saying September to November and we hope to get something from [Indecipherable]. But, it was delayed before, so it may delayed again. But, we are still in the discussions and it's still very much in the process.

Sameer Baisiwala -- Morgan Stanley -- Analyst

Okay. Sir, just one final, if I may on Sputnik V. And by the time we come to this time period, a lot of India would have got at least one dose, which means they will take the second dose also of that vaccine. So will there be enough market left in that sense if you back out the interior India, if you back out the anti-vaxxers, et cetera. So the moment you get beyond September, October, then does the commercial rationale come down significantly.

Erez Israeli -- Chief Executive Officer

It does in places that was vaccinated first time, I agree with that. It looks like there are still many places especially in the smaller cities and areas that we did not have the same opportunity still there, right. And so in that respect the opportunity is still there. And when you put that into account that is those antibodies longevity is also a question mark.

So, for example, the people that got their vaccine in the month of February, March will may have to get something again after a certain period of time. And when we are ramping up, especially as we're discussing also Sputnik Light, et cetera, we are aiming also the second wave of vaccination as well. So whether it was going to be with the six months, nine months, one-year or whatever period of time. So, yes, we may -- expect this delay, [Indecipherable] Russia made have costed us potential markets during the month of July, I agree with that. But I still believe that it's is a very viable opportunity, and it's also very much needed in that respect. Let's say that if we could have the supply today, I would not see any challenges fairly today.

Sameer Baisiwala -- Morgan Stanley -- Analyst

Okay. Got it, sir. Thank you and good luck.

Parag Agarwal -- Chief Financial Officer

Thank you so much.

Erez Israeli -- Chief Executive Officer

Thank you.

Operator

Thank you very much. We will have to take that as the last question. I would now like to hand the conference back to Mr. Amit Agarwal for closing comments.

Amit Agarwal -- Head of Investor Relations

Thank you all for joining us today for the earnings call. In case of any further queries, please reach out to the Investor Relations team. Thank you.

Erez Israeli -- Chief Executive Officer

Thank you and stay safe.

Operator

[Operator Closing Remarks]

Duration: 65 minutes

Call participants:

Amit Agarwal -- Head of Investor Relations

Parag Agarwal -- Chief Financial Officer

Erez Israeli -- Chief Executive Officer

Forum Parekh -- Choice Institutional Broking -- Analyst

Tushar Manudhane -- Motilal Oswal Financial Services -- Analyst

Damayanti Kerai -- HSBC Securities and Capital Markets -- Analyst

Prakash -- Axis Capital -- Analyst

Sriraam Rathi -- ICICI Securities -- Analyst

Nithya Balasubramanian -- Bernstein -- Analyst

Kunal Dhamesha -- Emkay Global -- Analyst

Anubhav Aggarwal -- Credit Suisse -- Analyst

Neha Manpuria -- J.P. Morgan -- Analyst

Saion Mukherjee -- Nomura -- Analyst

Sameer Baisiwala -- Morgan Stanley -- Analyst

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