Dr. Reddy’s Q1 FY20 Financial Results

Commenting on the results, CEO and Co-chairman, GV Prasad said “This quarter, we grew in most of our key markets and hope to continue this momentum with a sharper focus on performance. We will continue our journey of operational excellence, cost leadership and innovation across our businesses”.

All amounts in millions, except EPS All US dollar amounts based on convenience translation rate of I USD = Rs.68.92

Segmental Analysis

Global Generics (GG)

Revenues from GG segment at Rs.33.0 billion. Year-on-year growth of 8%, primarily driven by Emerging Markets, India and Europe. Sequential growth is 9%.

• Revenues from North America at Rs.16.3 billion. Year-on-year growth is 3%. Sequential growth of 9%, is driven by contribution from new products and increase in volumes, partly offset by price erosion coupled with adverse foreign exchange movement. We launched five new products (Daptomycin, Testosterone gel, Tobramycin, Vitamin K & OTC calcium carbonate) and re-launched Isotretinoin during the quarter.

As of 30^th June 2019, cumulatively 107 generic filings are pending for approval with the USFDA (104 ANDAs and 3 NDAs under 505(b)(2) route). Of these 104 ANDAs, 58 are Para IVs out of which we believe 34 have ‘First to File’ status.

• Revenues from Emerging Markets at Rs.7.3 billion. Year-on-year growth is 10%. Sequential growth is 4%.

- Revenues from Russia at Rs.4.0 billion. Year-on-year growth of 5%. Growth primarily driven by new launches and better realizations in some of the key molecules.

- Revenues from other CIS countries and Romania market at Rs.1.2 billion. Year-on-year growth of 2%.

- Revenues from Rest of World (RoW) territories at Rs.2.1 billion. Year-on-year growth of 27%, primarily driven by new products, traction in new markets and volume traction in base business.

• Revenues from India at Rs.7.0 billion. Year-on-year growth of 15%, driven by volume traction and improved realizations in base business and new product launches. Sequential growth is 7%.
• Revenues from Europe at Rs.2.4 billion. Year-on-year growth of 19%, primarily on account of new products and volume traction on account of improvement in supplies. Sequential growth is 26%.

Pharmaceutical Services and Active Ingredients (PSAI)

• Revenues from PSAI at Rs.4.5 billion. Year-on-year decline of 16% and sequential decline is 33% due to decline in the sales volume of certain products.

Proprietary Products (PP)

• Revenues from PP at Rs.281 million. Year-on-year decline of 61% due to absence of the derma products sales (which were divested in the previous year).

Income Statement Highlights:

• Gross profit margin at 51.7%.

- declined by ~70 bps sequentially and ~400 bps over that of previous year

- sequentially – excluding the impact of one-time out licensing income of Rs.1.8 billion realized from the sale of derma brands, the gross margins have witnessed improvement of 150 bps on a sequential basis

- YoY impacted by price erosion due to increased competitive intensity in some of our key molecules in the US and Europe, and lower sales from PSAI business

- Gross profit margin for GG and PSAI business segments are at 57.6% and 7.2% respectively.

• SG&A expenses at Rs.12.1 billion, remained flat on a year-on-year basis and declined by 3% sequentially.
• R&D expenses at Rs.3.6 billion. As % to Revenues- Q1 FY20: 9.4% | Q4 FY 19: 9.1% | Q1 FY19: 11.2%. Focus continues on building complex generics, bio-similars and differentiated products pipeline.
• Other operating income at Rs.3.8 billion; includes Rs.3.5 billion received from Celgene pursuant to an agreement entered towards settlement of any claim the Company or its affiliates may have had for damages under section 8 of the Canadian Patented Medicines (Notice of Compliance) Regulations in regard to the Company’s ANDS for a generic version of REVLIMID brand capsules, (Lenalidomide) pending before Health Canada.
• Net Finance income at Rs.393 million compared to Rs.156 million in Q1 FY19. The increase is primarily on account of higher profit on sales of investments by Rs.202 million during the quarter.
• Profit after Tax at Rs.6.6 billion. The effective tax rate is around 22% for the quarter.
• Diluted earnings per share is at Rs.39.91
• Capital expenditure is at Rs.1.1 billion.

Organizational Update:

With effect from August 1, 2019, Erez Israeli will be elevated as Chief Executive Officer (CEO) of Dr. Reddy’s Laboratories Limited. GV Prasad will continue as the Co-Chairman and Managing Director and Erez Israeli will continue to report to him.

Since joining Dr. Reddy’s as Chief Operating Officer (COO) in April 2018, Erez has spear-headed the transformation agenda of the organization by ensuring clear focus and strategy, setting foundations for a sustainable financial growth and leading business delivery. His appointment will help to propel the organization’s growth agenda forward.

Earnings Call Details (06:30 pm IST, 09:00 am EDT, July 29, 2019)

The Company will host an earnings call to discuss the performance and answer any questions from participants.

Audio conference Participants can dial-in on the numbers below:

Transcript of the event will be available at www.drreddys.com. Playback will be available for a few days.

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.

The company assumes no obligation to update any information contained herein.

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