Dr. Reddy's Laboratories (RDY)

Q1 2013 Earnings Call

July 19, 2012 9:00 am ET


Kedar Upadhye - Former Director

Umang Vohra - Chief Financial Officer, Executive 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


Balaji V. Prasad - Barclays Capital, Research Division

Nimish Mehta - MP Advisors

Arvind Bothra - BofA Merrill Lynch, Research Division

Ravi K. Agrawal - Standard Chartered plc, Research Division

Manoj Garg - Edelweiss Capital Ltd., Research Division

Sameer Baisiwala - Morgan Stanley, Research Division

Anubhav Aggarwal - Crédit Suisse AG, Research Division

Bino Pathiparampil - IIFL Research

Bhavin Shah - Dolat Investments Ltd., Research Division

Ranjit Kapadia - Centrum Broking Private Limited, Research Division

Nitin Agarwal - IDFC Securities Ltd., Research Division

Abhay Shanbhag - Deutsche Bank AG, Research Division

Saion Mukherjee - Nomura Securities Co. Ltd., Research Division

Chirag Talati - Espirito Santo Investment Bank, Research Division



Ladies and gentlemen, good day, and welcome to Dr. Reddy's Laboratories Limited Q1 FY '13 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand over the conference to Mr. Kedar Upadhye. Thank you, and over to you, sir.

Kedar Upadhye

Good morning, and good evening to all, and thank you for joining us today for Dr. Reddy's Earnings Call for quarter 1 of fiscal '13.

Earlier during the day, we have released our results and the same are also posted on our website. We're conducting a live webcast of this call, and the transcript shall be available on our website soon. The discussion and analysis of this call will be based on IFRS consolidated financials.

To discuss the business performance and outlook, we have today Satish Reddy, our Chief Operating Officer; Umang Vohra, our Chief Financial Officer; Abhijeet Mukherjee, President and Head of Global Generics; and the Investor Relations team. Please note that today's call is copyrighted material of Dr. Reddy's and cannot be rebroadcast or distributed in print or media outlet without the company's expressed written content.

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 the webcast. After the end of the call, in case any additional clarifications are required, please feel free to get in touch with the IR team. Now I would like to turn the call over to Mr. Umang for his opening remarks.

Umang Vohra

Thank you, Kedar. Good morning, and good evening to everyone. Let me begin with the key financial highlights. For this section, all the figures are translated to U.S. dollars at the convenient rate of $55.57 to the dollar. Our consolidated revenues are at $457 million for the quarter and grew by 28% over the previous year. Revenue from our Global Generics segment are at $343 million for the quarter and grew by 32% year-on-year, driven largely by the U.S., Russia and India. Revenue from the Pharmaceutical Services and Active Ingredients segment, what we shall refer to as PSAI in the rest of the call, are at $99 million and grew by 14% year-on-year.

Consolidated gross profit margin for the quarter is at 53.4%. Gross profit margin for Global Generics and PSAI are at 59% and 31%, respectively. SG&A expenses, including amortization for the quarter, are at $149 million and represent an increase of 23% over the previous year, largely attributable to year-on-year salary increments, higher sales and marketing costs and the effect of rupee depreciation against multiple currencies. Without the impact of exchange rates, this increase in SG&A is approximately 16.5%.

R&D costs are at $28 million for the quarter and are approximately 6% of the revenue. They show an increase of over 31% versus the previous year. This time, due to the volatility of exchange rates our ForEx line contains the loss of INR 30 crores attributed to time value of options. This time value is a function of volatility and time to maturity and it's likely to reverse over the balance period of the year. The effective tax rate for this year is 18%. However, due to the risk factors to the U.S. market in this quarter, the unrealized profit impact of the inventory is reduced from 30% to 10% this quarter. As a reminder, the normalized effective tax rate for one of the previous year was 16% against the reported 4% for the same period. This was primarily on account of the tax benefit on the unrealized profits on shipments made to the United States in that quarter, which was primarily olanzapine.

Profit after tax for the year is at $60 million and is at 13% of sales and shows a year-on-year growth of 28%. Similarly, adjusted profit after tax for the quarter is at $55 million and shows a year-on-year growth of 26%.

Key balance sheet highlights are as follows. Our working capital increased by $29 million and is largely in line with the increase in sales and its mix across the markets. Capital expenditure for the quarter is at $32 million.

Foreign currency cash flow hedges for the next 18 months in the form of derivatives and loans are at approximately $620 million, largely hedged around the $51.3 to $53.4 range. In addition, we have balance sheet hedges of $225 million, which are more or less at current rates.

Our mark-to-market losses and hedge reserve account in the balance sheet and account of the cash flow hedges are approximately $51 million, and this is a figure which would be spread over the next 18 months if the dollar rates stay the same as they are at the current time.

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