Dr. Reddy’s Q4 and FY18 Financial Results

Note: During FY18, the ‘Tax Cuts and Jobs Act of 2017’ was approved and enacted in the United States. Consequent to this enactment the deferred tax assets and liabilities of the US entity have been re-measured resulting in a charge of Rs. 130 Crores for the full year.

Commenting on the results, CEO and Co-chairman, G.V. Prasad said, “We concluded a challenging year for Dr. Reddy’s with a relatively muted fourth quarter’s performance. This was mainly on account of continuing headwinds in the U.S markets and a temporary drop in sales in Russia, attributable to a shift in the channel purchasing pattern.

Looking ahead, we will continue to work diligently on resolving pending regulatory issues. We will also focus on accelerating new products to market and improving our approval process.”

All amounts in millions, except EPS
All US dollar amounts based on convenience translation rate of I USD = Rs.65.11

Segmental Analysis [FY18]

Global Generics (GG)

Revenues from GG segment at Rs. 114 billion. Year-on-year (YoY) decline of 1%

Decline primarily on account of lower contribution from North America generics markets due to higher price erosion and unfavorable US dollar conversion

• Revenues from North America at Rs. 59.8 billion, YoY decline of 6%. Decline primarily on account of higher price erosions due to channel consolidation and increased competition in some of our key molecules namely valganciclovir, azacitidine, decitabine, etc. The above is partly offset by new products contribution.
• Revenues for the 4^th Quarter at Rs.14.5 billion, YoY decline of 6% and sequential decline of 10%. During the 4^th Quarter, we launched 3 new products - palonosetron inj, tetrabenazine and OTC levocetrizine

As of 31^st March 2018, 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, 63 are Para IVs out of which we believe 30 have ‘First to File’ status.

• Revenues from Emerging Markets at Rs.22.7 billion, YoY growth of 8%.
  • Revenues from Russia at Rs.12.6 billion. YoY growth of 9%. Adjusted for forex, growth driven by new launches. Revenues for the 4^th Quarter at Rs.2.6 billion, YoY decline of 25% primarily on account of lower off-take by the channel.
  • Revenues from other CIS countries and Romania at Rs.3.9 billion. YoY growth of 6%.
  • Revenues from Rest of World (RoW) territories at Rs.6.1 billion. YoY growth of 5%.
• Revenues from India at Rs.23.3 billion, YoY growth of 1%. Revenues for 4^th Quarter at Rs.6.1 billion, YoY growth of 7.5%. Normalizing for the GST transition related adjustments, adjusted growth for FY18 is ~8% and Q4 FY18 is ~16%.
• Revenues from Europe at Rs.8.2 billion, YoY growth of 8%. Revenues for the 4^th Quarter at Rs.1.7 billion, YoY decline of 17%, primarily due to higher price erosion and temporary supply disruptions.

Pharmaceutical Services and Active Ingredients (PSAI)

• Revenues from PSAI at Rs.22.0 billion, YoY growth of 3%. Growth driven by key molecules. Revenues for the 4^th Quarter at Rs.6.3 billion, YoY growth of 16%
• During the quarter, we have filed 5 DMFs in the US.

Proprietary Products (PP)

• Revenues from PP at Rs.4.2 billion
• During the year USFDA approved IMPOYZ™ (clobetasol propionate) Cream 0.025%. In line with the existing out-licensing agreement with Encore Dermatalogy Inc. this approval triggered milestone recognition of Rs.1.5 billion.

Income Statement Highlights [FY18]

• Gross profit margin at 53.7%.
  • Declined by ~190 bps over that of previous year primarily on account of higher price erosions, increased competitive intensity in some of our key molecules in the US and adverse foreign exchange impact.
  • Gross profit margin for GG and PSAI business segments are at 58.9% and 20.2% respectively.
  • Gross profit margin for the 4^th Quarter at 53.5% (GG: 59.3%, PSAI: 24.2%). Sequential decline is primarily on account of (a) increased competitive intensity in some of our key products in the US (b) lower contribution from Russia and (c) preceding Quarter had out-licensing income in our Proprietary Products business

• SG&A expenses at Rs.46.9 billion, marginal increase of 1%. SG&A expenses for the 4^th Quarter at Rs.12.1 billion, year-on-year increase of 10%.

• Research & development (R&D) expenses at Rs.18.3 billion. As % to Revenues - FY18: 12.9% | FY 17: 13.9%. Focus continues on building complex generics, bio-similars and differentiated products pipeline. R&D expenses for the 4^th Quarter stood at Rs.4.3 billion, as % to revenues at 12.3%.
• Net Finance income at Rs.2.1 billion compared to Rs.0.8 billion in FY17. The incremental income is primarily on account of increase in profit on sales of investments by Rs.1,314 million.
• Profit after Tax at Rs.9.8 billion. Profit after tax during the 4^th Quarter stood at Rs.3.0 billion. During the year, the ‘Tax Cuts and Jobs Act of 2017’ was approved and enacted in the United States. Consequent to this enactment the deferred tax assets and liabilities in the US entity have been re-measured resulting in a charge of Rs.1.3 billion being recorded under tax expense for the full year.
• Diluted earnings per share is at Rs.59.0. Diluted earnings per share during the 4^th Quarter at Rs.18.2
• Capital expenditure for FY18 is at Rs.9.2 billion. Capital expenditure for Q4 FY18 is at Rs.1.5 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, 2018 subject to approval of members

Earnings Call Details (06:30 pm IST, 09:00 am EDT, May 22, 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 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20180522005841/en/