Dr. Reddy’s Q1 FY19 Financial Results

Commenting on the results, Co-chairman and CEO, GV Prasad said “I am pleased with our first quarter results, aided by the launch of gSuboxone. Our focus on operational efficiencies has helped in significantly improving our margin profile. Looking ahead, while we may continue to experience price erosion in the North America Generics market, we will also continue to drive growth and cost efficiencies, at the same time, enhancing our quality management systems and building healthy portfolios across the markets we serve”.

All amounts in millions, except EPS
All US dollar amounts based on convenience translation rate of I USD = Rs.68.46

Segmental Analysis

Global Generics (GG)

Revenues from GG segment at Rs.30.6 billion. Year-on-year growth of 12%, primarily driven by contributions from Emerging Markets, India and launch of gSuboxone in the US. Sequential growth is 10%.

• Revenues from North America at Rs.15.9 billion. Year-on-year growth is 6%. Sequential growth of 10%, driven by contribution from new products, primarily gSuboxone, and partly offset by competitive pressures on some of the key molecules.

As of 30^th June 2018, cumulatively 112 generic filings are pending for approval with the USFDA (109 ANDAs and 3 NDAs under 505(b)(2) route). Of these 109 ANDAs, 61 are Para IVs out of which we believe 30 have ‘First to File’ status.

• Revenues from Emerging Markets at Rs.6.6 billion. Year-on-year growth is 16%. Sequential growth is 21%.
  • Revenues from Russia at Rs.3.8 billion. Year-on-year growth of 9%. Constant currency growth is 14%. Growth primarily driven by new launches and volume traction in some of the key molecules.
  • Revenues from other CIS countries and Romania market at Rs.1.2 billion. Year-on-year growth of 37%, primarily driven by new launches across markets.
  • Revenues from Rest of World (RoW) territories at Rs.1.7 billion. Year-on-year growth of 17%, primarily driven by new markets and volume traction in base business.

• Revenues from India at Rs.6.1 billion. Year-on-year growth of 30%. Q1FY18 was impacted due to GST transition.

• Revenues from Europe at Rs.2.0 billion. Year-on-year decline of 3%, primarily on account of higher price erosion in some of the key molecules.

Pharmaceutical Services and Active Ingredients (PSAI)

• Revenues from PSAI at Rs.5.4 billion. Year-on-year growth of 16%. Sequential decline is 13%
• During the quarter, we filed two DMFs with the USFDA.

Proprietary Products (PP)

• Revenues from PP at Rs.726 million. Year-on-year growth of 42%, majorly driven by volume traction coupled with better realizations in some of the key molecules. Sequential decline is 14%. Q4FY18 had a one-time out licensing income of Rs.160 million, received from Encore Dermatology Inc.

Income Statement Highlights:

• Gross profit margin at 55.7%.
  • Improved by ~230 bps sequentially and ~410 bps over that of previous year
  • Improvement primarily aided by contribution from new launches including gSuboxone, leverage benefit, better product mix coupled with favorable foreign exchange. This was partially offset by higher price erosions due to channel consolidation and increased competitive intensity in some of our key molecules in the US.
  • Gross profit margin for GG and PSAI business segments are at 61.2% and 21.9% respectively.

• SG&A expenses at Rs.12.1 billion, marginal increase of 3% on a year-on-year basis and remained flat sequentially.

• R&D expenses at Rs.4.2 billion. As % to Revenues- Q1 FY19: 11.2% | Q4 FY 18: 12.3% | Q1 FY18: 15.3%. Decrease is primarily on account of quarterly variation in the milestone related payments and other spend activities. Focus continues on building complex generics, biosimilars and differentiated products pipeline.
• Net Finance income at Rs.156 million compared to Rs.221 million in Q1FY18.
• Profit after Tax at Rs.4.6 billion. The effective tax rate is 8.9% for the quarter. This is lower primarily on account of profit mix and favourable resolutions of certain tax related litigations pertaining to earlier years. The effective tax rate in Q1FY18 was 23.5%
• Diluted earnings per share is at Rs.27.45
• Capital expenditure is at Rs.2.3 billion.

Earnings Call Details (06:30 pm IST, 09:00 am EDT, July 26, 2018)

About Dr. Reddy’s: Dr. Reddy’s Laboratories Ltd. (BSE: 500124, NSE: DRREDDY, NYSE: RDY) is an integrated pharmaceutical company, committed to providing affordable and innovative medicines for healthier lives. Through its three businesses - Pharmaceutical Services & Active Ingredients, Global Generics and Proprietary Products – Dr. Reddy’s offers a portfolio of products and services including APIs, custom pharmaceutical services, generics, biosimilars and differentiated formulations. Our major therapeutic areas of focus are gastrointestinal, cardiovascular, diabetology, oncology, pain management and dermatology. Dr. Reddy’s operates in markets across the globe. Our major markets include – USA, India, Russia & CIS countries, and Europe. For more information, log on to: www.drreddys.com

Disclaimer: This press release may include statements of future expectations and other forward-looking statements that are based on the management’s current views and assumptions and involve known or unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. In addition to statements which are forward-looking by reason of context, the words “may”, “will”, “should”, “expects”, “plans”, “intends”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”, or “continue” and similar expressions identify forward-looking statements. Actual results, performance or events may differ materially from those in such statements due to without limitation, (i) general economic conditions such as performance of financial markets, credit defaults , currency exchange rates , interest rates , persistency levels and frequency / severity of insured loss events (ii) mortality and morbidity levels and trends, (iii) changing levels of competition and general competitive factors, (iv) changes in laws and regulations and in the policies of central banks and/or governments, (v) the impact of acquisitions or reorganisation , including related integration issues.

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