Dr. Reddy’s Q4 & FY19 Financial Results

Commenting on the results, CEO and Co-chairman, G.V. Prasad said “It has been a good year with a significant turnaround in the financial performance and steady progress on the quality front. Looking ahead, we will focus on profitable growth, continue the emphasis on operational excellence and drive innovation to deliver value to patients and healthcare systems worldwide.”

All amounts in millions, except EPS
All US dollar amounts based on convenience translation rate of I USD = Rs. 69.16

Segmental Analysis [Full Year and Q4 FY 19]

Global Generics (GG)

Revenues from GG segment at Rs.123 billion. Year-on-year (YoY) growth of 8%

Growth on account of higher contribution from Emerging Markets and India; primarily due to volume gains, new launches and scale up of new markets.

• Revenues from North America for the year at Rs.60.0 billion, and remained flat on a YoY basis. The year was benefited by new launches, market share gains for existing products and a favorable forex rate, which was offset by price erosion in some of our key molecules.
• Revenues for the Q4 at Rs.15.0 billion, YoY growth of 3% and sequential growth of 1%. During this quarter, we launched 5 new products – major ones being Propofol injection and Tadalafil (Adcirca and Cialis).

As of 31^st March 2019, cumulatively 110 generic filings are pending for approval with the USFDA (107 ANDAs and 3 NDAs under 505(b)(2) route). Of these 107 ANDAs, 60 are Para IVs out of which we believe 34 have ‘First to File’ status.

• Revenues from Emerging Markets for the year at Rs.28.9 billion, YoY growth of 28%.
  • Revenues from Russia for the year at Rs.15.3 billion, YoY growth of 21%. Growth was majorly driven by scale up of Nasivin launched during FY 18 and improvement in base business, partially offset by adverse exchange rate movement.
  • Revenues for the Q4 at Rs.3.6 billion, YoY growth of 41%. Growth primarily driven by better volume traction as previous year was impacted by lower volume off-take by the channel.
  • Revenues from other CIS countries and Romania for the year at Rs.5.2 billion, YoY growth of 34%.
  • Revenues from Rest of World (RoW) territories for the year at Rs.8.4 billion, YoY growth of 36%. Growth primarily on account of new launches and volume traction in key products.

• Revenues from India for the year at Rs.26.2 billion, YoY growth of 12%, with a growth in base business and new product launches. Revenues for Q4 at Rs.6.5 billion, YoY growth of 6%.
• Revenues from Europe for the year at Rs.7.9 billion, YoY decline of 4% impacted by price erosion. Revenues for Q4 at Rs.1.9 billion, YoY growth of 12%, primarily on account of new launches.

Pharmaceutical Services and Active Ingredients (PSAI)

• Revenues from PSAI for the year at Rs.24.1 billion, YoY growth of 10%. Growth driven by sales from key molecules and favorable forex. Revenues for the Q4 at Rs.6.8 billion, YoY growth of 8%
• During the quarter, we have filed 4 DMFs in the US.

Proprietary Products (PP)

• Revenues from PP for the year at Rs.4.7 billion, YoY growth of 12%. Revenues include Rs.1.8 billion, realized from the sale of derma brands. In previous year, we had a milestone revenue of Rs.1.5 billion.

Income Statement Highlights [Full Year and Q4 FY 19]

• Gross profit margin for the year at 54.2%: Improved by ~50 bps over previous year primarily on account of new launches, leverage on manufacturing overheads, favorable forex rates, offset largely by higher price erosions in the US and Europe markets. Gross profit margin for GG and PSAI business segments are at 58.5% and 25.4% respectively.
• Gross profit margin for the Q4 at 52.4% (GG: 56.0%, PSAI: 21.0%).
  • YoY basis the gross margin declined by ~100 bps, primarily on account of price erosion, partially offset by new launches and favorable forex rates
  • QoQ basis the gross margin declined by ~150 bps, primarily on account of adverse forex rate from Q3 to Q4, change in the business mix, higher manufacturing overheads due to certain one-off charges and overhead impact on inventory movement. The decline in gross margin was partially offset due to revenue recognition on PP Derma products.
• SG&A expenses at Rs.48.9 billion, YoY increase of 4%. SG&A expenses for the Q4 at Rs.12.4 billion, year-on-year increase at 3%. We continue to focus on cost optimization and productivity improvement.

• Research & development (R&D) expenses at Rs.15.6 billion. As % to Revenues - FY19: 10.1% | FY 18: 12.9%. Focus continues on building complex generics, biosimilars and differentiated products pipeline. R&D expenses for the Q4 at Rs.3.7 billion, as % to revenues stood at 9.1%.
• Net Finance income for the year at Rs.1.1 billion compared to Rs.2.1 billion in FY18. The decline is primarily on account of higher income from profit on sales of investments by Rs.1.5 billion in previous year.
• Profit after Tax at Rs.18.8 billion. Effective tax rate at 16.3%. Profit after tax for the Q4 at Rs.4.3 billion. Effective tax rate during the quarter at 25.8%.
• Diluted earnings per share for the year is at Rs.113.1. Diluted earnings per share for Q4 is at Rs.26.2
• Capital expenditure for FY19 is at Rs.7.0 billion. Capital expenditure for Q4 FY18 is at Rs.1.8 billion.

The Board has recommended payment of a dividend of Rs.20 per equity share of face value Rs.5/- each (400% of face value) for the year ended March 31, 2019 subject to approval of members.

Other Matters

As a subsequent event, the company has entered into a settlement agreement with Celgene, pursuant to which the Company received a one-time payment of USD 50 million in 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.

Earnings Call Details (06:00 pm IST, 08:30 am EDT, May 17, 2019)

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.

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