Dr. Reddy's Laboratories Ltd. (BSE: 500124) (NSE: DRREDDY) (NYSE: RDY):

Revenues at Rs. 32.3 billion
     

(YoY decline of 14%)
 

EBITDA at Rs. 4.0 billion

(12.3% of the revenues)
 

PAT at Rs. 1.3 billion

(3.9% of the revenues)

Dr. Reddy's Laboratories Ltd. (BSE: 500124) (NSE: DRREDDY) (NYSE: RDY) today announced its consolidated financial results for the first quarter ended June 30, 2016 under International Financial Reporting Standards (IFRS).

Q1 FY17: Key Highlights
  • Consolidated revenues at Rs. 32.3 billion, year-on-year decline of 14%
  • Gross Profit Margin at 56.2%, declined by ~490 bps over that of last year
  • Research & Development (R&D) spend at Rs. 4.8 billion, year-on-year increase of 9%. Continued focus on building complex generics and differentiated products pipeline
  • Selling, general & administrative (SG&A) expenses at Rs. 12.3 billion, year-on-year increase of 12%
  • EBITDA at Rs. 4.0 billion, 12.3% of revenues
  • Profit after tax at Rs. 1.3 billion, 3.9% of revenues

Co-chairman and CEO GV Prasad said: "We have come through a very difficult first quarter, with our top and bottom lines impacted by a decline in volume growth, particularly in the US market and the loss of business in Venezuela. We also faced a number of challenges in the quarter including price erosion and delayed launches as a result of the warning letter, which significantly impacted our earnings. However, we continue to take actions that focus on remediation, strengthening our quality systems and executing on our strong product pipeline. We remain focused on generating long term, sustainable growth."

All amounts in millions, except EPS
     

All US dollar amounts based on convenience translation rate of I USD = Rs. 67.51
 

Dr. Reddy's Laboratories Limited and Subsidiaries

Consolidated Income Statement
 
Particulars   Q1 FY 17   Q1 FY 16  

Growth %
  ($)   (Rs.)   %   ($)   (Rs.)   %  
Revenues 479   32,345   100.0   557   37,578   100.0 (14)
Cost of revenues   210   14,167   43.8   217   14,631   38.9   (3)
Gross profit   269   18,178   56.2   340   22,947   61.1   (21)
Operating Expenses
Selling, general & administrative expenses 182 12,284 38.0 163 10,973 29.2 12
Research and development expenses 71 4,802 14.8 65 4,387 11.7 9
Other operating expense / (income)   (1)   (96)   (0.3)   (2)   (125)   (0.3)   (23)
Results from operating activities   18   1,188   3.7   114   7,712   20.5   (85)
Finance expense / (income), net (7) (445) (1.4) (3) (216) (0.6) 106
Share of (profit) of equity accounted investees, net of income tax   (1)   (74)   (0.2)   (1)   (49)   (0.1)   49
Profit before income tax   25   1,707   5.3   118   7,977   21.2   (79)
Income tax expense   7   444   1.4   25   1,720   4.6   (74)
Profit for the period   19   1,263   3.9   93   6,257   16.6   (80)
                             
Diluted EPS   0.11   7.43       0.54   36.58       (80)
 

EBITDA Computation
 
Particulars   Q1 FY 17   Q1 FY 16
  ($)   (Rs.)   ($)   (Rs.)
Profit before tax 25   1,707   118   7,977
Interest (income) / expense net* (6) (409) (5) (304)
Depreciation 26 1,760 23 1,519
Amortization   14   921   11   749
EBITDA   59   3,979   147   9,941
EBITDA (% to sales)       12.3       26.5
 

* Includes income from investments
 

All amounts in millions, except EPS
     

All US dollar amounts based on convenience translation rate of I USD = Rs. 67.51
 

Key Balance Sheet Items
 
Particulars   As on 30 th June 16   As on 31 st March 16
  ($)   (Rs.)   ($)   (Rs.)
Cash and cash equivalents and Other current Investments   379   25,578   592   39,955
Trade receivables   526   35,499   612   41,306
Inventories   414   27,922   379   25,578
Property, plant and equipment   814   54,951   799   53,961
Goodwill and Other Intangible assets   419   28,284   365   24,644
Loans and borrowings (current & non-current)   557   37,632   496   33,513
Trade payables   188   12,723   182   12,300
Equity   1,690   1,14,112   1,901   1,28,336
 

Revenue Mix by Segment
 
Particulars   Q1 FY 17  

Q1 FY 16
 

Growth %
  ($)   (Rs.)   %   ($)   (Rs.)   %  
Global Generics   395   26,638   82   459   30,961   82   (14)
North America       15,523           18,516       (16)
Europe*       1,615           1,912       (16)
India       5,223           4,756       10
Emerging Markets #       4,277           5,777       (26)
PSAI   70   4,692   15   83   5,614   15   (16)
North America       643           580       11
Europe       1,947           2,350       (17)
India       372           670       (44)
Rest of World       1,730           2,014       (14)
Proprietary Products & Others   15   1,015   3   15   1,003   3   1
Total   479   32,345   100   557   37,578   100   (14)
 

* 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

Revenues from Global Generics segment are at Rs. 26.6 billion, year-on-year decline of 14%; decline primarily on account of lower contribution from North America and loss of sales from Venezuela.
  • Revenues from North America at Rs. 15.5 billion, year-on-year decline of 16%. Decline primarily on account of increased competition primarily in valgancyclovir and azacitidine, coupled with pricing pressure and moderation in volumes off-take.As of 30 th June, 2016, cumulatively 78 generic filings are pending for approval with the USFDA (76 ANDAs and 2 NDAs under 505(b)(2) route). Of these 76 ANDAs, 50 are Para IVs out of which we believe 18 have 'First to File' status.
  • Revenues from Emerging Markets at Rs. 4.3 billion, year-on-year decline of 26%.
    • Revenues from Russia at Rs. 2.3 billion, year-on-year growth of 2%. Moderate growth primarily on account of depreciation of Ruble, in constant currency revenues grew by 23% year-on-year. Sequentially, the revenues have been stable.
    • Revenues from other CIS countries and Romania market at Rs. 0.7 billion, year-on-year decline of 15%.
    • Revenues from Rest of World (RoW) territories at Rs. 1.3 billion, year-on-year decline of 53% primarily on account of no sales in Venezuela. Ex-Venezuela it grew by 19%.
  • Revenues from India at Rs. 5.2 billion, year-on-year growth of 10%. NPPA pricing notifications and the WPI based annual price decline impacted growth. Portfolio acquired from UCB well-integrated into our supply chain.
  • Revenues from Europe at Rs. 1.6 billion, year-on-year decline of 16%.

Pharmaceutical Services and Active Ingredients (PSAI)
  • Revenues from PSAI at Rs. 4.7 billion, year-on-year decline of 16%. Decline primarily on account of lower dispatches in API business on account of the ongoing remediation activities.
  • During the quarter, 19 DMFs were filed globally of which 2 were in the US. The cumulative number of DMF filings as of 30 th June, 2016 was 784.

Proprietary Products (PP)

Subsequent to the approvals received from USFDA for 2 NDAs, the company had launched these two molecules Zembrace™Sym Touch™ (Suma 3 mg) injection and Sernivo™ (betamethasone dipropionate) Spray, 0.05% in the US. The performance of these two molecules is gradually picking up traction.

Income Statement Highlights:

  • Gross profit margin at 56.2% and declined by ~490 bps over that of previous year primarily led by increased competitive intensity in some of the key products in NAG and relatively lower price realizations. Gross profit margin for Global Generics (GG) and PSAI business segments are at 61.3% and 24.1% respectively.
  • SG&A expenses at Rs. 12.3 billion, year-on-year growth of 12%. This increase is largely due to the ongoing remediation activities, launch related activities for the approved NDAs by PP and certain routine items related to manpower and other spends.
  • Research & development expenses at Rs. 4.8 billion, year-on-year growth of 9%. As a % to sales R&D expenses stood at 14.8% in Q1 FY17 as compared to 11.7% in Q1 FY16. Continued focus on building complex generics and differentiated products pipeline.
  • Net Finance income at Rs. 445 million compared to the net finance income of Rs. 216 million in Q1 FY16. The incremental charge of Rs. 229 million is on account of:
    • Net foreign exchange gain of Rs. 36 million in the current quarter vs net foreign exchange loss of Rs. 88 million in the previous year.
    • Increase in profit on sales of investments by Rs. 54 million.
    • Net increase in interest income of Rs. 51 million.
  • Profit after Tax at Rs. 1.3 billion
  • Diluted earnings per share is at Rs. 7.4
  • Capital expenditure is at Rs. 3.2 billion.

Earnings Call Details (06.30 pm IST, July 26, 2016)

The Company will host an earnings call at 06.30 pm IST on July 26, 2016, to discuss the performance and answer any questions from participants. This call will be accessible through an audio dial-in and a web-cast.

Audio conference Participants can dial-in on the numbers below

Primary number:    

91 22 3960 0616
Secondary number:

91 22 6746 5826
International Toll Free Number

USA

18667462133

 

UK

08081011573

 

Singapore

8001012045

 

Hong Kong

800964448
Playback of call:

91 22 3065 2322, 91 22 6181 3322
Conference ID:

375#
Web-cast

More details will be provided through our website, www.drreddys.com

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 gastrointestinal, 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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