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 31 March 2020.

Earlier during the day, we have released our results and the same are also posted on our website. This call is being recorded, and the playback and 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. Saumen Chakraborty, 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, good afternoon and good morning to all the participants. I do hope that you and your families continue to remain safe and healthy during these unprecedented times. Let me quickly provide you with an update on the situation and how we, as an organization, are playing a part within the overall health care system in these extraordinary times. Our foremost priority is to ensure the health and safety of our employees, patients, health care professionals, customers, suppliers and community at large. We have enhanced the safety requirements across all our working locations, enforced physical distancing norms, mandated use of protective gear, and enabled remote working across all our global office locations. We have accepted the new reality and swiftly implemented an effective business continuity plan across the functions and have been able to ensure that our operations continue right through the pandemic situation without compromising on the health and safety of our employees.

From a supply perspective, together with the inventory on hand and the continued manufacturing support, we have been able to address the enhanced product demands across various markets. We launched several new products, overcame logistical barriers and effective - through effective customer engagement have continued the business. In the branded markets, we've been able to effectively leverage the virtual connect model to support health care professionals, patients and our people. Overall, we are truly inspired to see how colleagues across the company have risen to the occasion and overcome every obstacle in the way to fulfill our mission, which is to ensure continued supply medicines to patients and doctors under safe conditions.

We are also playing our part of being an effective - socially responsible corporate citizen and have extended support to the communities through various initiatives, such as supporting the health care workers, staff and police and other public servants by providing them with PPE kits, masks, sanitizers, gloves, as well as food assistance to the marginal sections and migrant worker families.

With this, I hand over the call to Saumen for taking you all through the financial performance of the company.

Saumen Chakraborty - President and Chief Financial Officer

Thank you, Prasad. Good evening to everyone.

The current-year financial performance has been quite good with the highest-ever sales and EBITDA and a strong free cash flow, thereby turning net cash surplus. Let me take you through key financial highlights for the quarter and FY '20. For this section, all the amounts are translated into US dollars at a convenient translation rate of INR75.39, which is the rate as of March 31, 2020.

Consolidated revenues for the quarter stood at INR4,432 crore, that is $588 million, and grew by 10% on year-on-year basis and by 1% on a sequential quarter basis. Year-on-year growth has been supported by good performance in North America Generics, Europe and Emerging Markets. Sequentially, while there has been good growth in NAG and Europe, our branded markets had lower sales.

The revenues for FY '20 stood at INR17,460 crores, that is $2.32 billion and grew by 13%. The growth has been primarily supported by improvement in the base business volumes, new product launches and proprietary product out-licensing income. However, partially impacted due to price erosion. As regards to COVID-19-related impact, while we saw some incremental sales in certain markets, that is US, Europe and Russia, due to increase in panic buying, our sales got impacted or deferred in PSAI, India and few emerging markets. Albeit, on an overall basis, there is no major impact on Q4 or FY '20.

Consolidated gross profit margin for this quarter has been 51.5% with a decline of 90 basis points on year-on-year basis and a decline of 260 basis points quarter-on-quarter. The sequential quarter decline has been primarily on account of, A, impact of changes in the business mix, and B, increase in inventory provisions/write-offs related to this quarter. Gross margin for the Global Generics and PSAI were at 55.9% and 28.4% for the quarter. Gross margin for FY '20 has been 53.8% against 54.2% in FY '19. Gross margin for Global Generics was 56.8% and PSAI was 24.1% for the full year.

The SG&A spend for the quarter is INR1,218 crores, that is $162 million, and declined by 1% year-on-year and by 4% quarter-on-quarter. The SG&A spend for the year is INR5,013 crores, that is $665 million, and has grown by 3%. The SG&A cost as a percentage to sales declined from 31.6% in FY '19 to 28.7% in FY '20, indicating the leverage benefit on improvement in sales. The R&D spend for the quarter is INR419 crores, that is $56 million, and is at 9.5% of sales. The R&D spend for the FY '20 is INR1,541 crores, that is $204 million. R&D as a percentage to sales stood at 8.8% for FY '20, against 10.1% in previous year.

Other income for the year includes an amount of INR346 crores, arising out of the settlement income received in quarter one. The EBITDA for the quarter is INR1,001 crores, that is $133 million, which is around 22.6% of the revenue. The EBITDA for the year is INR4,643 crores, that is $666 million and around 26.6% of the revenue.

Profit before tax for the quarter is INR714 crores with a year-on-year growth 22%. PBT for the full year is INR1,803 crores, a decline of 20% over FY '19. This decline was due to the impairment charges of INR1,677 crores taken during the year. Adjusted for this, the PBT would have grown by a healthy 55%. Profit after tax is higher than PBT during the quarter and full year, due to recognition of MAT credit and creation of deferred tax assets, in line with the requirements of accounting standards. We expect that the EPS would be around 22% for the next year. Reported EPS for the quarter is INR46.01 and for the full year is INR117.40.

Operating working capital increased during the quarter by around INR439 crores, which is $58 million. The increase is primarily attributable to an increase in receivables due to higher sales and delay in certain collections, which we expect to normalize in the current year. Net working capital days, however, have remained in line with last quarter, supported by reduction in inventory levels. We invested INR150 crores, which is $20 million, towards capital investment in this quarter. The free cash flow generated during this quarter was lower at INR7 crores, which is around $1 million, mainly constrained by an increase in receivable, which we expect to improve from current quarter. The free cash flow generated during FY '20 is healthy at INR2,313 crores and led us to now have a net surplus cash of INR397 crores as on March 31, 2020.

Our net debt-to-equity ratio is at negative 0.03% and reflects our strong balance sheet position. Foreign currency cash flow hedges for the next seven months in the form of derivatives for US dollars are approximately $265 million, largely hedged around the range of INR72.0 to INR76.3 to the dollar. In addition, we have cash flow hedges of RUB1 billion at the rate of INR1.0283 to the ruble, maturing over next 10 months.

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

Erez Israeli - Chief Executive Officer

Thank you, Saumen. Good morning, good evening to everyone.

I'm very happy with the way we have adapted to the crisis [Phonetic] and continued our focus on execution even during these challenging times. We made good progress to implement our strategy toward diversification, creating more opportunities with less risk and attaining self-sustainable business model for each one of our businesses. The FY '20 has been a very good year for us, which is reflected through the following. A, successful in obtaining the VAI status for CTO 6 after five years, and desired outcome for all other site inspection by the US FDA. B, a PBT growth of 55% adjusted for impairment charge taken during the year. EBITDA growth of 36% and improvement in the EBITDA margin. Improvement in the ROCE adjusted for impairment charge taken during the year. Healthy cash flow generation, leading to much stronger balance sheet.

Turnaround performance for our North America Generics and our Europe business. Healthy double-digit growth in branded markets. Continued traction towards development of product pipeline across business and productivity improvement seen across manufacturing, marketing and R&D.

Let me now take you through the key business highlights for each of our businesses. Please note that all the reference to the numbers in this section are in respective local currencies. Our North America Generics business recorded sales of $250 million for the quarter, with a strong growth of 17% year-on-year and 11% on a sequential quarter basis. The quarter witnessed an overall increase in demand driven by front-loading by patient and inventory built up by customers due to COVID-19 lockdowns. Further, we also benefited from continued activity on new product launches, coupled with favorable market share gains across some of key products, including gCopaxone - gSuboxone, sorry.

In all, we launched five new products in this quarter, including our second CGT product, naloxone hydrochloride injection, a first-to-market generic launch for gVimovo and gDaraprim. On a full-year basis, we launched 27 products, including four relaunch of the earlier discontinued products. We expect the new launches' momentum to continue during the year with about 25 product launches lined up despite uncertainty due COVID-19. On a full-year basis, the scale has been $910 million, a growth of 6% over the previous year, signifying the strong reversal in decline witnessed over prior two years.

Our Europe business recorded sales of EUR43 million, with a strong year-on-year growth of 81% and sequential growth of 10%. On a full-year basis, the sales are EUR148 million and has grown at a phenomenal rate of 53%. This performance is driven by improvement in base business, new product launches and ramp-up in three newer markets, France, Italy and Spain. During the quarter, we launched one product in Germany, three products in UK, two products each in France, Italy and Spain. The current year has reset a new base for this business, and we look forward to continued growth from here on.

Our Emerging Markets business recorded sales of INR804 crores in Q4, with a year-on-year growth of 15%. However, a sequential quarter decline of 13%. On a full-year basis, Emerging Markets sales has been INR3,281 crores and grew a healthy rate of 14%. Within the EM segment, the Russia business in Q4 grew at 9% in constant currency on a year-to-year basis. But a decline of 17% quarter-on-quarter on the back of high base in Q3, owing to one-time supply of Reditux tender volumes. In FY '20, Russia grew by 9% in constant currency. The overall growth in emerging markets was led by higher volume and new product launches, which was partially impacted due price erosion in a few markets. During the quarter, we launched 10 new products across these markets.

Our India business recorded sales of INR684 crores with a year-on-year growth of 5%. However, a sequential quarter decline of 10%. The growth was impacted due to logistics-related disruptions caused by COVID-19 lockdowns. On a full-year basis, our sales was INR2,895 crores and grew by 11%. As per the secondary sales reported by IQVIA, we registered steady growth of 11.4%, ahead of total market growth of 10.8% for the - in March 2020. Our PSAI business recorded sales of $99 million with a year-on-year growth of 3% and sequential quarter growth of 2%. Here too, the growth was impacted due to the logistics-related disruption. On a full-year basis, the sales were $362 million and grew by 4%. We continue to witness a very healthy order book for the business and are hopeful of a good growth coming year.

On the quality and compliance front, we have turned a new leaf with the resolution of pending issues for all of our sites. The recent audit outcome for all of site inspections have been positive. Quality continued to remain a key focus area and priority for the company going forward. During this quarter, we filed 45 formulation products across global markets, including 300 in the US market. As of 31 March 2020, we have 99 cumulative filings pending for approval with the US FDA, including 97 ANDAs and two 505(b)(2) NDAs. We also filed 59 Drug Master Files globally, including seven filings made in the US. We continue to strengthen our pipeline and products across the markets. We are also working on a few molecules related to COVID-19 disease.

On our Proprietary Products business, recently, USFDA approved our NDAs for oral liquid celecoxib formulated named ELYXYB. In this latest product emerging from Dr. Reddy's portfolio for acute migraine treatment, we are actively working to commercialize this product to partners. Overall, we are making good progress in building and advancing a strong pipeline of high-value, globally relevant assets. We are continuing our efforts to monetize select assets through partnership and licensing transactions that maximize their value. The rituximab Phase 3 trial is progressing as per plan. And in parallel, we are working on multiple other biosimilar products, which are in different stage of development.

Currently, we are going through a phase of uncertain business environment wherein the possibility of volatility remains high. However, there are certain structural tailwinds also for us, such as opportunities for improving our market share across multiple markets and ramping up relevance in our global API business. Overall, we remain hopeful to continue to grow and emerge as a much stronger company, meeting the expectations of all of our stakeholders.

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

Question & Answers

Operator

[Operator Instructions]

The first question is from the line of Anuj Gupta [Phonetic] from Angel Broking. Please go ahead.

Anuj Gupta - Angel Broking - Analyst

Thank you for giving us this opportunity, sir. Sir, my first question is on the domestic business. How you're looking at the Indian domestic business for the next two quarters as the MRs productivity will come down, and the number of prescriptions will - maybe come down in the near future?

Erez Israeli - Chief Executive Officer

So we don't know how the market will evolve. I cannot predict it. We cannot predict it. Naturally, there is going to be an impact on the fact that patients could not visit physicians, sorry. And there will be a certain impact on that. On the other hand, we do see also a place in which the demand is higher. So I believe that once the lockdown will be over, India will eventually ramp up toward normal consumption. When exactly it will be, I wish I knew.

Anuj Gupta - Angel Broking - Analyst

Okay. Thank you, sir.

Operator

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

Anubhav Aggarwal - Credit Suisse - Analyst

Hi, good evening. One question is, when we look at the IQVIA data, it shows that the US generic market volumes were down in the last 45 days in April and May. Just wanted to check, how has been the primary sales trend? Have we seen that that impact is largely the secondary sales? Or have the primary sales been impacted as well?

Erez Israeli - Chief Executive Officer

Sure. We - right now, we see healthy demand coming from the customers. So we see the IQVIA numbers as well. Right now, what we see is the normal activities on our side.

Anubhav Aggarwal - Credit Suisse - Analyst

Okay. That's helpful. Second question is on generic Suboxone. So earlier, you have mentioned that you have enough capacity that you could double your market share. The authorized generic has almost exited the market. Our market share has gone up, let's say, 15% to 20%. But we - given our capacity size, we could have got much higher market share. So I just wanted to understand what was the constraint here. The reason I'm asking is, innovator still has 40% share. So just trying to understand our [Technical Issues] market share here.

Erez Israeli - Chief Executive Officer

We are able to take more market, yes.

Anubhav Aggarwal - Credit Suisse - Analyst

But we haven't done as well as we could have done, like Sandoz, who exited, had 25% share. We could only take 5% share out of that.

Erez Israeli - Chief Executive Officer

You ask if there is a constraint, I don't see a constraint on our side.

Saumen Chakraborty - President and Chief Financial Officer

So there is always a lag between contracted and actual reported sales.

Anubhav Aggarwal - Credit Suisse - Analyst

Okay. You mean to say that you have taken higher share, it will reflect in the future. Is that what you're meaning, Saumen?

Saumen Chakraborty - President and Chief Financial Officer

No, I don't want to imply that, but I'm just saying there is always a lag, which is there between the two. That also you need to keep in mind. I'm not implying anything.

Anubhav Aggarwal - Credit Suisse - Analyst

Okay, sure. Thank you.

Operator

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

Neha Manpuria - JP Morgan - Analyst

Thank you for taking my question. My first question is on the India business. I know that the Wockhardt deal is still pending, but what's your thought process post the completion of that acquisition? What are the key areas that you want to focus on in that business?

Saumen Chakraborty - President and Chief Financial Officer

So right now, we are waiting for the closure, because the definitive agreement was signed, but the closure is contingent to completion of all the conditions precedent. And along with the closure, we'll have the full integration plan, and then we can give a full response to your question. Right now, it is too premature.

Neha Manpuria - JP Morgan - Analyst

And by when do we expect the closure, sir, of the deal?

Saumen Chakraborty - President and Chief Financial Officer

It should be happening during this quarter. We'll get back to you whatever it happens.

Neha Manpuria - JP Morgan - Analyst

Okay. Sure. My second question is on generic Vascepa. Post litigation in the district court, just wanted to get a sense of where we are in terms of the product with the FDA?

Erez Israeli - Chief Executive Officer

So it's a great win for us. And we believe that this is a product with a lot of potential. And right now, and as you know, there is still a legal process in there, and we are working toward exploiting the potential of this one.

Neha Manpuria - JP Morgan - Analyst

But do we have a target action date on this? Or is there a CRL on this from an FDA perspective?

Erez Israeli - Chief Executive Officer

There is no regulatory issue on this one.

Neha Manpuria - JP Morgan - Analyst

Okay. Understood. Thank you.

Operator

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

Prakash Agarwal - Axis Capital - Analyst

Yeah, thanks for the opportunity. And congratulations on good numbers. Sir, just one statement you made on the US business, COVID-related stocking in the US. So is - can you quantify that roughly? And also, the stocking continues or the previous participant - as that volumes have come down and you mentioned your volumes are okay. So for you, the - are you the beneficiary of some shortages in the market? If you could clarify that as well. Thank you.

Erez Israeli - Chief Executive Officer

So in the end of March, indeed, there was some piling up of inventories. In the US, the preparations for the COVID-19 situation. This is not happening anymore. Now it's a normal trend of activities. There is nothing special now.

Prakash Agarwal - Axis Capital - Analyst

Okay. But sir, you mentioned that your sales are okay. I mean you're not seeing a drop. So I was just thinking if this one-time COVID restocking not happening? Are the volumes going up due to some shortages? Or some new launches are taking that share? If you could just clarify that.

Erez Israeli - Chief Executive Officer

First, we have new launches and we launched also in the end of March, and we continue to launch also in this quarter. This is absolutely helping us. We have some products that gain market share, and we expect also to get more. Overall, like I mentioned, it's - so far, it is normal, I would call it, normal way of doing business in the United States.

Prakash Agarwal - Axis Capital - Analyst

Okay. And lastly, if you could give any guidance in terms of number of product launches like you gave last year in the US and also outlook on PSAI business? Thank you, sir.

Erez Israeli - Chief Executive Officer

So I mentioned in my script, it was about 25 products for the US.

Prakash Agarwal - Axis Capital - Analyst

Okay. And outlook for PSAI business? Since you mentioned you have been filing a lot DMFs, how should we - since in the past, it has been like single-digit growth with muted margins. How do we see this business scaling up over next 12 to 24 months?

Erez Israeli - Chief Executive Officer

It will be a great business going forward. We are not giving guidance, as you know.

Prakash Agarwal - Axis Capital - Analyst

Okay, sir. I have more questions. I'll join back in queue. Thank you.

Operator

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

Nithya Balasubramanian - Sanford Bernstein - Analyst

Yeah, hi. Thank you for the opportunity. So the first question is on the US pricing environment. So can you tell us a little bit about what you're reading right now post COVID? Price - if pricing is better because supply is more important right now than pricing. And my second question was around SG&A and productivity improvement. You've obviously done really well in the recent past. So is this right now at an optimum level? Or do you think there are more efficiencies to be extracted?

Erez Israeli - Chief Executive Officer

Sure. On the first question, the pricing situation in the US got stabilized over time. And every year is getting better. So naturally, there will continue to be price decrease in the US. This is the business model, but we - but it got stabilized versus the years before. As for…

Nithya Balasubramanian - Sanford Bernstein - Analyst

But do you think COVID specifically is helping or…?

Erez Israeli - Chief Executive Officer

Maybe, but it's yet to seeing. We need more time for that to see the pattern. Right now, I cannot comment on COVID-19, I really don't know. On the productivity, it's not cause its productivity. We were able to make and generate the growth actually, without adding to our infrastructure costs, even including the inflation. And this is primarily by leveraging the activities in our sites, in our R&D and our marketing to do more - to do more with some place, to do more with the same some place, some place to do more with less. We are not yet at the productivity level that I'm expected to be. So there is more potential for productivity improvement in the company going forward. In some areas, even much more. We have a quest to be the most productive owners in what we do, and we are on the way there.

Nithya Balasubramanian - Sanford Bernstein - Analyst

Are there specific areas that you can highlight? Is it sales force productivity or manufacturing - cost optimization? What specific levers do you think you will be focusing on going forward?

Erez Israeli - Chief Executive Officer

Firstly, it's about, to leverage the activity globally. It means that if we have one product, we want to sell it in many markets. And to give that service to as many markets as we can from one operation center. Then the manufacturing to do it to be modernized, digitized facilities that we'll be able to do it in the most efficient manner. Then, the time to market, the recycle time of the activities and of course, also the other, it means lean SG&A, including the markets. So productivity is everywhere. But the primary cost that we have is naturally on the back end, which is the stuff that we are buying plus the sites that we have.

Nithya Balasubramanian - Sanford Bernstein - Analyst

Thank you.

Operator

Thank you. The next question is from the line of Vishal B. from Aviva Insurance. Please go ahead.

Vishal Biraia - Aviva Life Insurance - Analyst

Hi. The higher growth in Europe that we saw in this quarter was mainly led by some large tenders? Or, any other important aspects that you would like to point out here?

Erez Israeli - Chief Executive Officer

It was a better performance of the European teams in five countries, but primarily in Germany, plus new markets that we entered primarily with injectable products, meaning Spain, France and Italy. So it's a combination of the few, it's not just one product in the market. It's an overall activity, it's better performance of our European team.

Vishal Biraia - Aviva Life Insurance - Analyst

Okay. And what would be your guidance for the whole year of '21 in terms of growth in Europe that you see, some qualitative view?

Erez Israeli - Chief Executive Officer

We are not sharing guidance, sorry.

Vishal Biraia - Aviva Life Insurance - Analyst

Okay. And Saumen, you mentioned that you expect an improvement in receivables gradually. So what will drive the improvement in receivables? And actually what will cause them to rise?

Saumen Chakraborty - President and Chief Financial Officer

Could you please repeat your question?

Vishal Biraia - Aviva Life Insurance - Analyst

On the receivables, could you elaborate a bit more as to what led to the increase in receivables and what would lead to the increase?

Saumen Chakraborty - President and Chief Financial Officer

Yeah. Part of the receivables is in line with the increase in sales, but part of the receivables was because of some collection, which we saw in the recent months, we have been able to do it. So that's why I say that temporarily what got increased in the quarter ending March will get normalized in the quarter going forward.

Vishal Biraia - Aviva Life Insurance - Analyst

So this increase was primarily in India or…

Saumen Chakraborty - President and Chief Financial Officer

Overall, our - it is both in India as well as some other markets. But overall, our cash cycle remains in line with what it was in the previous year.

Vishal Biraia - Aviva Life Insurance - Analyst

Okay. And lastly, some perspectives on - qualitative perspectives on Suboxone film as to how do you see the pricing, the competition shaping up? Any perspective on this?

Erez Israeli - Chief Executive Officer

It's going to continue to be a great product for us.

Vishal Biraia - Aviva Life Insurance - Analyst

Okay. Thank you.

Operator

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

Kunal Dhamesha - Systematix - Analyst

Hi, thanks for taking my question. So, my first question is related to capital deployment. Now that we are net cash plus and we are kind of generating INR2,000-plus-crore of cash every year, I think the Wockhardt acquisition that we have done would largely be paid through the cash accrual only. So post that, what are our priorities, given the COVID challenges, are we seeing opportunities in India to invest or whether share buyback is on the cards?

Saumen Chakraborty - President and Chief Financial Officer

So in terms of deployment categories, our primary lever for growth has been always on the R&D side. So R&D and technology along with innovation will be one area of deployment. And as I already mentioned that in next year, we would like to even spend more on R&D with an absolute amount. So that will be there. Inorganic growth, we have been focusing, but very strategically, with the articulation, which Erez has already done earlier in the past. We have chosen specific spaces where we want to attend leadership. In line with those specific spaces, we are thinking strategically about inorganic growth. And we are very comfortable in terms of our balance sheet, so it should not be difficult for us if we get right kind of target to move on in that particular area.

We are deploying quite a bit of resource. I will go beyond capital in terms of overall resource, even in terms of capability building, including the digital, because this is one thing which we feel will help us, both in terms of improving productivity and creating real differentiation. So there have been certain platforms where we have taken some early advantage, but there are many platforms where we really want to build end-to-end digital capabilities, and that includes even application of AI, machine learning as well as all the analytics. So there have been, as I talked in my media presentation earlier during the day, that the capex - cash outflow has been less during FY '20, but there were projects which were approved, so further investment will be there, mostly in injectable area and also our biosimilar capacity expansion. So that will be another area of capital deployment, which would be there.

Beyond that, in terms of our organic expansion, whether it is in terms of marketing, brand building, and also in some of the new markets within the emerging markets area, there also we'll be deploying our resources. Does it respond to your question?

Kunal Dhamesha - Systematix - Analyst

Yes, partly. So on capex side, how much we are planning to put for biosimilar and injectables? And what would be our maintenance and basically the development capex for, let's say, this year or maybe next couple of years?

Saumen Chakraborty - President and Chief Financial Officer

So granular details, I will not be able to give you. But overall, the capex for FY '21 could be in excess of INR1,000 crores.

Kunal Dhamesha - Systematix - Analyst

Okay. And my second question is related to the launches, let's say, in Germany, France, Spain, Italy. So the new product launches that we are doing, are we launching the same product that we have in the portfolio, like you have said that you will be leveraging whatever product portfolio we have, or as of now we are launching new products?

Erez Israeli - Chief Executive Officer

Yes. No, that's exactly there. So we - if you recall in previous discussions, we said that we want to leverage our portfolio globally. And the products that we launched are primarily products that we have also in the United States or we will have in the United States, depends on the time of launch.

Kunal Dhamesha - Systematix - Analyst

Okay. And so based on that I'd say - believe we have a long runway to go in terms of product launches because we have 100-plus products in the US?

Erez Israeli - Chief Executive Officer

Yes. And we will have much more in the US, and we will have much more in Europe. We just started to expand in Europe.

Kunal Dhamesha - Systematix - 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

Hi, thanks and good evening, everyone. Great quarter. Is it possible to update us on generic Copaxone and Nuvaring in terms of time lines to resubmit data with the FDA?

Erez Israeli - Chief Executive Officer

Yes. So we are working on both CRLs, and planning to submit it within the next few weeks or months.

Sameer Baisiwala - Morgan Stanley - Analyst

Okay. Great. And what would be your - would this be getting to market in the current fiscal year?

Erez Israeli - Chief Executive Officer

I don't know. I learned from these two products after we got multiple CRLs, so they're better not to predict. Once we will get approval, we will launch it.

Sameer Baisiwala - Morgan Stanley - Analyst

Okay. Great. Sir, second question is, can you update us on the business plan for China, in terms of - where are we in terms of product filings and how do you see the ramp up going forward?

Erez Israeli - Chief Executive Officer

China is a very important market for us, and we ramped up our activities there. So we are not sharing yet specific numbers for China. But let's say, the strategy that I communicated in the last meeting in San Francisco is still valid.

Sameer Baisiwala - Morgan Stanley - Analyst

Okay. One final from my side. In terms of your capacity utilization now, how is it versus pre-COVID across your network?

Erez Israeli - Chief Executive Officer

We never stopped working. We had some bumps for a couple of weeks, but we never stopped working. And overall, there will be no impact that is related to COVID-19 production.

Sameer Baisiwala - Morgan Stanley - Analyst

Great. I got a few more. I'll get back in the queue. Thank you so much.

Operator

Thank you. The next question is from the line of Tushar M. from Motilal Oswal. Please go ahead.

Tushar Manudhane - Motilal Oswal - Analyst

Good evening, sir. Good set of numbers. Just would like to understand the gross margin, if I - is there any - the inventory-led write-off, if adjusted for that, then what would the gross margin look like for the quarter?

Saumen Chakraborty - President and Chief Financial Officer

I cannot get into that finer level of details. I say that normally, the price erosion, which happens that is - that impacts gross margin. We have been always trying to improve productivity and various other measures to contain that. But there was a specific sequential decline, I said the inventory write-offs as well as the change in the business mix because you've seen there are certain business, for example, Europe has grown tremendously. And if the branded market sequentially has declined, it has its consequential impact on the overall gross margin for the organization.

Tushar Manudhane - Motilal Oswal - Analyst

Understood. So would you like to call out for like FY '21 range of gross margin?

Saumen Chakraborty - President and Chief Financial Officer

See, I have earlier also said the way we put our business model, it is to deliver a gross margin, which is not of 50%. If we look at how we have done over various quarters across several years, it fluctuates, but it could be fluctuating from quarter-to-quarter based on specific events in that quarter. Normal expectation range will be between 52% to 54%.

Tushar Manudhane - Motilal Oswal - Analyst

Okay, sir. And similarly, on R&D as a percentage of sales?

Saumen Chakraborty - President and Chief Financial Officer

Difficult to predict. It will depend on how much will be the sales. But R&D on an absolute, as I said, will increase. You can take it up 9% to 10% of sales maybe on R&D.

Tushar Manudhane - Motilal Oswal - Analyst

Sure. And just lastly, at least on the India side, where it seems the supply chain - supply side issues are very much resolved whether it be in terms of capacity utilization or in terms of the distribution of the product. But is the willingness of patient to reach out to doctors, if that takes time, then would it mean that we just continue to change the system - the channel, but ultimate sale would get delayed by three, four months?

Erez Israeli - Chief Executive Officer

So we will - naturally, there will be an impact on the market because of that reason that you mentioned and it will also impact us. And all of the channels in our case will stay open, and we will continue to serve any customers that we may be. I believe that it will improve in the future once the lockdown will be over.

Tushar Manudhane - Motilal Oswal - Analyst

Okay, sir. Thanks very much.

Operator

Thank you. The next question is from the line of Nikhil Mathur from Ambit Capital. Please go ahead.

Nikhil Mathur - Ambit Capital - Analyst

Hi, good evening, everyone. I just have one question. Since this COVID outbreak, we have seen that a number of plants - be it for the operative or for the industry, as a whole, a number of plants have been given clearances by the USFDA. But the clearance status that has been given is largely voluntary action indicated and very less plants have been given an action that's No Action Indicated. So my simple question here is, does the voluntary action indicated leave room for FDA to come back and cite certain non-compliant issues at a particular facility? Or are you confident enough that even with the VAI status, the facilities are [Indecipherable] horizon?

G V Prasad - Co-Chairman and Managing Director

So VAI does not mean they'll come back. It means that the action plan that we submitted is acceptable and the site is clear. NAI is applicable only when there is no action at all necessary. That means there is no 483 at all. So I don't think it has anything to do with COVID, but it's more about GMP status of the action plan and accepting - the acceptability of that.

Nikhil Mathur - Ambit Capital - Analyst

Okay, sure. That was my question. Thank you.

Operator

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

Damayanti Kerai - HSBC - Analyst

Hi, good evening, everyone. Thanks for the opportunity. Sir, can you quantify how much of sales were impacted due to logistic disruption in the quarter? And are we remain confident about recovering most of the sales, which were delayed?

Saumen Chakraborty - President and Chief Financial Officer

So we are again not giving granular details of how much has been impacted due to logistics. It has been like, particularly we said that. Otherwise, we have been growing very well during the year. Last quarter, in the last fortnight of March, there was a genuine problem in terms of dispatching, and we can only recognize revenue subject to the proof of delivery being there at the end of our distributors. So in terms of recovery, it all depends on how this whole COVID-19 pans out. So we cannot predict at this point of time. But whatever could not have been dispatched due to logistics, when it opened up, those got dispatched, if that is your question.

Damayanti Kerai - HSBC - Analyst

Okay, sure. And how…

Erez Israeli - Chief Executive Officer

Just to make sure, all the stuff that - we were not able to recognize in March, naturally, we could recognize when it reached the customer level, that's what Saumen is trying to say.

Damayanti Kerai - HSBC - Analyst

Sure. My second question is, how you are looking India in terms of launches planned. So last year, obviously, it was very strong here in terms of launches. So how you are planning for next one or two years in terms of new launches for India market?

Erez Israeli - Chief Executive Officer

It's going to continue to be strong for us as well.

Damayanti Kerai - HSBC - Analyst

Okay. Similar like 25, 30 launches a year, that's a range we should look at?

Erez Israeli - Chief Executive Officer

We are not giving guidance on that. It's going to be very, very healthy.

Damayanti Kerai - HSBC - Analyst

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

Operator

Thank you. The next question is from the line of Alok Dalal from CLSA. Please go ahead.

Alok Dalal - CLSA - Analyst

Good evening. Just one question on the injectable pipeline for the US. So your last update says about 30 injectable products awaiting approval. How do you see the launch pipeline for FY '21?

Erez Israeli - Chief Executive Officer

It's the same as last time was discussed. Still a big portion of our portfolio in values is in injectables, and it will continue to be like this also going forward.

Alok Dalal - CLSA - Analyst

Okay. Can you guide, as to out of 25 new launches, how many could be injectable?

Erez Israeli - Chief Executive Officer

We are not giving this kind of information.

Alok Dalal - CLSA - Analyst

Okay. That's it from my side. Thank you.

Erez Israeli - Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Aditya Khemka from DSP Mutual Fund. Please go ahead.

Aditya Khemka - DSP Mutual Fund - Analyst

Hi, thanks for the opportunity. So Saumen, did I hear you correctly? So the R&D budget for FY '21 you are saying around 10% of sales?

Saumen Chakraborty - President and Chief Financial Officer

I didn't say that. I only said on absolute amount will be higher than FY '20. It all depends on sales. But I'd say, approximately, it could be 9% to 10% of sales. That's what I mentioned. So it should be accountable for that as a guidance.

Aditya Khemka - DSP Mutual Fund - Analyst

No, no. Fair enough. And secondly, you also guided towards a capex of over INR1,000 crores for FY '21. Safe to assume a similar run rate for FY '22 as well?

Saumen Chakraborty - President and Chief Financial Officer

Too premature to comment on that. I said some of the projects that we've started and approved in FY '20, so that - some of that is going to spill over to FY '21. So for FY '21, I could tell. FY '22, we cannot talk anything right now.

Aditya Khemka - DSP Mutual Fund - Analyst

Right. So my question really is that if you see on your costing side, be it R&D or your capital expenditure, I see slightly more higher amounts dedicated to R&D and capex versus six months earlier when we spoke or three months earlier when we spoke. So what is driving this optimism in terms of R&D investments and capital expenditure? Are you guys seeing more demand for which you need more capacity or more opportunities for which you need higher R&D? What is driving this higher expenditure on both R&D and capital expenditure?

Erez Israeli - Chief Executive Officer

When we discussed our strategy, our strategy suggests that leadership in the spaces that we discussed in the past. So if in the past the main investment was throughout the United States, now we are doing for a more diversified space. So first of all, we have more products, two more countries that will require more quantities. The primary investment is that we are going to ramp up to make - to develop more products and more differentiated products. So it's a combination of both. On the capacity side, it's primarily more investment in Indian portfolio.

Aditya Khemka - DSP Mutual Fund - Analyst

Understood. If I might follow up on that…

G V Prasad - Co-Chairman and Managing Director

I'd like to add to that we are also investing in modernizing some of our older plants, and that will require some level of investment.

Aditya Khemka - DSP Mutual Fund - Analyst

Got it, Prasad, sir. Thank you. Just one follow-up on that. So we had earlier alluded to an aspirational target of achieving 25% EBITDA margin by FY '22. In the wake of the higher capital expenditure and the slightly higher R&D budget that we are speaking about. Do you think that's still an achievable target?

Erez Israeli - Chief Executive Officer

First, I never said FY '22. I did say 25% and I believe that is achievable, and we will achieve it.

Aditya Khemka - DSP Mutual Fund - Analyst

Got it. Thank you.

Operator

Thank you. Ladies and gentlemen, we'll take the last question from the line of Saion Mukherjee from Nomura. Please go ahead.

Saion Mukherjee - Nomura - Analyst

Thanks for taking my question. Sir, just on the biosimilar bit, you mentioned about capex there. Is it more to do with the regulated markets or the opportunity you see in the emerging markets? Can you give some more color on the biosimilar business?

Erez Israeli - Chief Executive Officer

So the capacity is for overall markets because we are using the products for all the spaces that we are in. We are not dedicating capacity for a specific market. And our products are, by and large, global. So it's a capacity for each one of the relevant spaces that we have, especially on the - if you remember that we discussed the space of the hospital product. This is a global process for us in which we want potentially to sell to every country that wants to have affordable products with high quality. So this is a truly global business.

And as for the biologics, again, it's a global market, in which we will be self-sustained for the United States and Europe with a couple of products in which we will have, hopefully, partnerships that will help us to market those products in those areas and to finance our R&D.

Saion Mukherjee - Nomura - Analyst

Okay. Thank you.

Operator

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

Amit Agarwal - Investor Relations

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

G V Prasad - Co-Chairman and Managing Director

Thank you.

Operator

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Q4 2020

Earnings Transcript

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