Dr. Reddy’s Q2 and H1 FY18 Financial Results

HYDERABAD, India--(BUSINESS WIRE)-- Dr. Reddy’s Laboratories Ltd.(BSE: 500124 | NSE: DRREDDY | NYSE: RDY) today announced its consolidated financial results for the second quarter and half year ended September 30, 2017 under International Financial Reporting Standards (IFRS).

Q2 FY18: Key Highlights

• Revenues at Rs. 35.5 billion [QoQ growth: 7%; YoY decline: 1%]
• Gross Profit Margin at 53.3% [Q1 FY18: 51.6%; Q2FY 17: 56.0%]
• Research & Development (R&D) spend at Rs. 4.2 billion. [11.8% of Revenues]
• Selling, general & administrative (SG&A) expenses at Rs. 11.0 billion [YoY decrease: 6%]
• EBITDA at Rs. 6.9 billion [19.4% of Revenues]
• Profit after tax at Rs. 2.8 billion [8.0% of Revenues]

H1 FY18: Key Highlights

• Revenues at Rs. 68.6 billion [YoY growth: 1%]
• Gross Profit Margin at 52.5% [H1 FY17: 56.1%]
• Research & Development (R&D) spend at Rs. 9.3 billion. [13.5% of Revenues]
• Selling, general & administrative (SG&A) expenses at Rs. 22.8 billion [YoY decrease: 5%]
• EBITDA at Rs. 10.2 billion [14.9% of Revenues]
• Profit after tax at Rs. 3.4 billion [5.0% of Revenues]

Commenting on the results, CEO and Co-chairman, G.V. Prasad said, “Healthy performances in India, Emerging Markets, Europe and PSAI businesses, as well as continued focus on cost control, have contributed to sequential growth in our topline as well as bottom line, with an EBITDA increase of 105% over the previous quarter.

Looking ahead, we expect to see results from products launched in the U.S. during the first half of this fiscal. We will continue to focus on the launching of new products, as well as on improving operational efficiencies and quality management systems across the company.”

All amounts in millions, except EPS
All US dollar amounts based on convenience translation rate of I USD = Rs. 65.30

* Europe primarily includes Germany, UK and out licensing sales business
# Emerging Markets refers to Russia, other CIS countries, Romania and Rest of the World markets including Venezuela

Segmental Analysis

Global Generics (GG)

Revenues from GG segment at Rs. 28.6 billion, year-on-year marginal decline of 1%; decline primarily on account of lower contribution from North America offset by increased contribution from Europe, India and Emerging Markets.

• Revenues from North America at Rs. 14.3 billion. Year-on-year decline of 11%, primarily on account of higher price erosions due to channel consolidation and increased competition in some of our key products namely Valgancyclovir, Azacitidine, Esomeprazole, etc.

  During the quarter we launched 4 new products i.e. Sevelamer Carbonate, Cefixime OS, Bupropion XL and Metaxalone tabs. Since Sevelamer carbonate was launched post the cut-off date for revenue recognition, no sales have been recorded during the quarter.

  As of 30^th September 2017, cumulatively 103 generic filings are pending for approval with the USFDA (100 ANDAs and 3 NDAs under 505(b)(2) route). Of these 100 ANDAs, 60 are Para IVs out of which we believe 28 have ‘First to File’ status.

• Revenues from Emerging Markets at Rs. 5.5 billion, year-on-year growth of 14%.
  • Revenues from Russia at Rs. 3.2 billion, year-on-year growth of 20%. In constant currency i.e. in Ruble terms year-on-year growth of 13%. Growth driven by higher volume uptake in base business and new products.
  • Revenues from other CIS countries and Romania market at Rs. 0.9 billion, year-on-year growth of 3%.
  • Revenues from Rest of World (RoW) territories at Rs. 1.4 billion, year-on-year growth of 9%.

• Revenues from India at Rs. 6.4 billion, year-on-year growth of 2%. Partial recovery was witnessed in the inventory holding by the channel post the transition to the GST regime. Pre-GST transition, the reported numbers included the excise duty component with a corresponding charge in the income statement. Post the transition, revenues reported are lower to the extent of the ED component, though it’s a profit neutral adjustment. Normalizing for this and some other transition related adjustments, the comparable year-on-year growth would be around 10%.

• Revenues from Europe at Rs. 2.4 billion, year-on-year growth of 37%. Growth primarily driven by new launches and volume uptake in some of the key products.

Pharmaceutical Services and Active Ingredients (PSAI)

• Revenues from PSAI at Rs. 5.7 billion, year-on-year decline of 2%. On a sequential basis revenues registered a growth of 22% aided by improved order flow and supply situations.
• During the quarter, 16 DMFs were filed globally of which 2 were in the US. The cumulative number of DMF filings as of 30^th September, 2017 was 780.

Income Statement Highlights:

• Gross profit margin at 53.3% and declined by ~270 bps over that of previous year, decline primarily on account of 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 59.2% and 19.6% respectively.

  Gross profit margins improved 170 bps sequentially, aided by favorable manufacturing overheads leverage (higher revenues and lower overheads).

• SG&A expenses at Rs. 11.0 billion, a decrease of 6% both year-on-year and sequentially. In Q2 FY17 the company had accrued a potential liability of Rs. 344 million towards NPPA provision. After adjusting the base, the marginal decline is primarily on account of prudent control on spend.

• Research & development expenses at Rs. 4.2 billion. As % to Revenues- Q2 FY18: 11.8% | Q1 FY 18: 15.3% | Q2 FY17: 14.5%]. Compared to the trend, spend is lower partially on account of deferment in some of the milestone related payments to subsequent quarters. Focus continues on building complex generics, biosimilars and differentiated products pipeline.
• Net Finance expense at Rs. 24 million compared to the net finance income of Rs. 365 million in Q2FY17. The incremental expense of Rs. 389 million is on account of:
  • Net foreign exchange gain of Rs. 47 million in the current quarter vs net foreign exchange gain of Rs. 37 million in the previous year.
  • Decrease in profit on sales of investments by Rs. 289 million.
  • Net increase in interest expense of Rs. 110 million.
• Profit after Tax at Rs. 2.8 billion.
• Diluted earnings per share is at Rs. 17.15.
• Capital expenditure is at Rs. 2.8 billion.

Earnings Call Details (06:30 pm IST, 09:00 am EDT, October 31, 2017)

The Company will host an earnings call to discuss the performance and answer any questions from participants. This call will be accessible through an audio dial-in and a web-cast.

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 gastro-intestinal, cardiovascular, diabetology, oncology, pain management and dermatology. Dr. Reddy’s operates in markets across the globe. Our major markets include – USA, India, Russia and other CIS countries. 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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