Dr. Reddy's Laboratories' CEO Discusses Q3 2012 Results - Earnings Call Transcript

Dr. Reddy's Laboratories (RDY)

Q3 2012 Earnings Call

February 03, 2012 8:00 am ET

Executives

Kedar Upadhye - Former Director

Gunupati Venkateswara Prasad - Executive Vice Chairman, Chief Executive Officer, Member of Management Council, Chairman of Investment Committee, Member of Strategy Committee, Member of Shareholders Grievance Committee and Member of Management Committee

Umang Vohra - Chief Financial Officer, Chief Compliance officer, Senior Vice President and Member of Management Council

Kallam Satish Reddy - Managing Director, Chief Operating Officer, Executive Director, Member of the Management Council, Chairman of Management Committee, Member of Shareholders Grievance Committee, Member of Investment Committee and Member of Strategy Committee

Analysts

Ashwin Agarwal

Nimish Mehta - MP Advisors

Manoj Garg - Edelweiss Capital Ltd., Research Division

Sonal Gupta - UBS Investment Bank, Research Division

Bino Pathiparampil - IIFL Research

Nitin Agarwal - IDFC Securities Ltd., Research Division

Anubhav Aggarwal - Crédit Suisse AG, Research Division

Abhay Shanbhag - Deutsche Bank AG, Research Division

Sameer Baisiwala - Morgan Stanley, Research Division

Prakash Agarwal - RBS Research

Bhagwan Singh Chaudhary - IndiaNivesh Securities Pvt Ltd., Research Division

Ranjit Kapadia - Centrum Broking Private Limited, Research Division

Ravi Agrawal - Standard Chartered plc, Research Division

Prashant Nair - Citigroup Inc, Research Division

Hitesh Mahida

Surajit Pal - Elara Securities (India) Private Limited, Research Division

Koushik Pal

Arvind Bothra - BofA Merrill Lynch, Research Division

Jorge Mauro

Rahul Sharma - KARVY Stock Broking Limited, Research Division

Presentation

Operator

Ladies and gentlemen, good day, and welcome to the Q3 FY '12 Earnings Conference Call of Dr. Reddy's Laboratories Ltd. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Kedar Upadhye. Thank you, and over to you, sir.

Kedar Upadhye

Good morning and good evening to all. Welcome to Dr. Reddy's Q3 FY '12 Earnings Conference Call for the quarter ended December 31, 2011. Earlier during the day, we have released our results and the same are also posted on our website. We are conducting a live webcast of this call and a transcript shall be available on our website soon. The discussion and analysis on this call will be based on IFRS consolidated financials.

To discuss the business performance and outlook, we have today G.V. Prasad, our Chief Executive Officer; Satish Reddy, our Chief Operating Officer; Umang Vohra, our Chief Financial Officer; and the Investor Relations team. Please note that today's call is copyrighted material of Dr. Reddy's and cannot be rebroadcasted or attributed in press or media outlet without the company's expressed written consent.

Before we proceed with the call, I would like to remind everyone that the Safe Harbor language contained in today's press release also pertains to this conference call and webcast. After the end of the call, in case any additional clarifications are required, please feel free to get in touch with Raghavender, Milan or myself.

I would now like to turn the call over to Mr. Prasad for his opening remarks.

Gunupati Venkateswara Prasad

Good evening and good morning to all participants. I welcome you to our Q3 FY '12 earnings call. I am happy to announce that this quarter's results mark our highest-ever quarterly sales and profit performance.

On the back of the highly anticipated launch of olanzapine 20 mg in the U.S. market this year, our revenues have grown by 46%, and net profit has grown by over -- by 88% over the same period of the previous year. As you're aware, the 180-day exclusivity for olanzapine runs into the fourth quarter of this fiscal as well, and we will benefit from this contribution in Q4, but at not at the same level as Q3.

It has been our target to leverage the limited competition, high-margin opportunities consistently in the U.S. markets. These opportunities will be both in the form of 180-day exclusivity, as well as difficult to develop and manufacture products, resulting in longer-term, sustainable revenue streams. Olanzapine launch is a key milestone for us in this journey. Our partnership with Teva for the distribution of olanzapine 20 mg was also beneficial as the result of offering the full range of products to the marketplace.

Over the next 6 months, we also have a number of other important launches lined up for the U.S. market, which will fuel our growth for the next fiscal year. The organization, including manufacturing, supply chain and commercial teams, are adequately geared to tackle the increased business scale as well as the associated challenges. These launches are the result of the sustained R&D efforts and investments made over the last several years. This would also help us in building a growing and sustainable revenue base beyond FY '13.

Now I hand over to Umang to discuss the quarter's financial performance. Umang?

Umang Vohra

Thank you, Prasad. Good morning and good evening to everyone. Let me begin with the key financial highlights. All the numbers, including those of the previous year in my section, are covered at the convenience translation rate of INR 53 per USD $1. Discussion in Satish's section will be based on performance in respective market's local currency.

Our consolidated revenues at $522 million for the quarter have registered a year-on-year growth of 46%. This includes $99 million of revenues related to our revenue share from our partner for olanzapine 20 milligram. Growth for the 9 months of this fiscal event, 29%. Excluding olanzapine, the growth in the quarter over the previous year is close to 23%.

Year-on-year, we have also benefited from the rupee depreciation against most of the foreign currencies. However, this has to be seen in conjunction with the cash flow hedge loss of $21 million booked in sales, primarily in relation to our hedges on account of olanzapine.

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