Business mix change drove gross margins higher: Dr Reddy's

In an interview with CNBC-TV18's Archana Shukla and Nayantara Rai, Saumen Chakraborty, India - President, CFO and Global IT Head, Dr Reddy's Laboratories, discussed the company's first quarter earnings.Below is the transcript of the interview on CNBC-TV18.Q: Let me begin by asking you on the operational front, it is a stellar performance, a stellar quarter as far as margins are concerned. What really led to the strong growth in gross margins and will this be sustainable in the coming quarters?A: One reason for gross margin is business mix change because the more you get out of the global generics business segment there is a favourable impact on the gross margin.The second is if you really look at the SG&A, the growth in SG&A from the FY15 Q1 to FY16 Q1 is only 3 percent, that means several of the cost control initiatives that we have been undertaking that has yielded some good result. India also has been growing and that also is more than average gross margin of Dr Reddy's. So, all these things are helping in terms of the gross margin expansion.Q: Also the net profit which was up 14 percent it has beaten street estimates, is this run rate sustainable and what do you think it would be dependent on going forward?A: The very reason that we do not give any kind of guidance is because of the uncertainties in the market. Internally we remain confident but I cannot give a very specific guidance whether we can retain or improve the net profit.Are there opportunities, if that is the question, definitely there are opportunities. However it all depends on product approvals and also depends on our execution. If we execute well and if we get the product approvals then definitely it could be a very good year.Q: On the UCB integration how has that panned out and how much has it contributed?A: UCB integration has happened. It was a very smooth integration but it has happened in the very fag end of Q1. So, the numbers that you get from India does not have much of UCB in Q1. However from Q2 onwards we will see.So, an annualised revenue of Rs 150 crore is the target for UCB that we have kept for ourselves.Q: How about the US business, it was strong this quarter. What does the drug pipeline look like going forward and how does the growth trajectory for the coming quarters look like?A: What can really push the growth is approvals. In Q2 we have got one launch which is Memantine but the major approval that we are expecting is Esomeprazole and whenever we get that, it will give a good boost to the US sales.Q: Wanted to particularly ask on Esomeprazole or Nexium, how confident are you of an approval. You were working for a site transfer, is that process complete and have you heard from the USFDA on that?A: We have completed that and we have already submitted all our data and findings to USFDA. They had few questions and we believe we have satisfactorily responded to all those questions. So, that is why I said we are awaiting approvals and if it happens then it will be good for us.Q: On the Srikakulam plant could you run us through what is the status on the resolution at that plant. Has the USFDA come for a second audit there and is the resolution really in sight there?A: After responding to the audit findings last year, we have given two updates which we call periodic updates to FDA and the third one we are now preparing and hopefully in next couple of weeks we will send the third update. Normally USFDA - it will unannounced, they may come for an audit. So, we will have to wait for the resolution of Srikakulam.