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

Q2 FY17: Key Highlights
  • Revenues at Rs. 35.9 billion: QoQ growth: 11%
    • YoY decline: 10%
  • Gross Profit Margin at 56.0%. Lower by ~530 bps versus the same quarter last year
  • Research & Development (R&D) spend at Rs. 5.2 billion. [14.5% of Revenues]
  • Selling, general & administrative (SG&A) expenses at Rs. 11.8 billion [YoY increase: 6%]
    • Includes NPPA provision of Rs. 344 million, explained in details in the note
  • EBITDA at Rs. 6.4 billion [17.9% of Revenues]
  • Profit after tax at Rs. 2.9 billion [8.2% of Revenues]

H1 FY17: Key Highlights
  • Revenues at Rs. 68.2 billion
    • YoY decline: 12%
  • Gross Profit Margin at 56.1%. Lower by ~510 bps versus H1 FY16
  • Research & Development (R&D) spend at Rs. 10.0 billion. [14.7% of Revenues]
  • Selling, general & administrative (SG&A) expenses at Rs. 24.1 billion [YoY increase: 9%]
  • EBITDA at Rs. 10.4 billion [15.2% of Revenues]
  • Profit after tax at Rs. 4.2 billion [6.2% of Revenues]

Commenting on the results, Co-chairman and CEO, G V Prasad said, "All our major businesses have shown sequential improvement over the previous quarter with revenues growing by 11% and EBITDA by 61%. We have made considerable progress in our remediation efforts and continue to work on addressing the concerns of the regulators. Looking ahead we will continue to focus on launching new products in our generics business, improving productivity and strengthening our quality management systems."
       

All amounts in millions, except EPS

All US dollar amounts based on convenience translation rate of 1 USD = Rs. 66.58
 

Dr. Reddy's Laboratories Limited and Subsidiaries
Consolidated Income Statement
Particulars     Q2 FY 17     Q2 FY 16     Growth %
    ($)     (Rs.)     %     ($)     (Rs.)     %    
Revenues 539     35,857     100.0 599     39,889     100.0 (10)
Cost of revenues     237     15,760     44.0     232     15,421     38.7     2
Gross profit     302     20,097     56.0     368     24,468     61.3     (18)
Operating Expenses
Selling, general & administrative expenses 177 11,774 32.8 166 11,058 27.7 6
Research and development expenses 78 5,214 14.5 67 4,473 11.2 17
Other operating expense / (income)     (4)     (277)     (0.8)     (5)     (320)     (0.8)     (13)
Results from operating activities     51     3,386     9.4     139     9,257     23.2     (63)
Finance expense / (income), net (5) (365) (1.0) 3 216 0.5 (269)
Share of (profit) of equity accounted investees, net of income tax     (1)     (84)     (0.2)     (1)     (57)     (0.1)     49
Profit before income tax     58     3,835     10.7     137     9,098     22.8     (58)
Income tax expense     13     885     2.5     28     1,880     4.7     (53)
Profit for the period     44     2,950     8.2     108     7,218     18.1     (59)
                                           
Diluted EPS     0.27     17.76           0.63     42.20           (58)
 

EBITDA Computation
Particulars     Q2 FY 17     Q2 FY 16
    ($)     (Rs.)     ($)     (Rs.)
Profit before income tax 58     3,835     137     9,098
Interest (income) / expense net* (5) (329) (3) (172)
Depreciation 28 1,897 24 1,606
Amortization 14 950 13 860
Impairment     1     67     -     -
EBITDA     96     6,420     171     11,392
EBITDA (% to sales)           17.9           28.6

* - Includes income from Investments
 
 

Key Balance Sheet Items
Particulars     As on 30 th Sep 16     As on 30 th June 16
    ($)     (Rs.)     ($)     (Rs.)
Cash and cash equivalents and Other current Investments     321     21,379     384     25,578
Trade receivables     555     36,939     533     35,499
Inventories     428     28,516     419     27,922
Property, plant and equipment     842     56,052     825     54,951
Goodwill and Other Intangible assets     762     50,766     425     28,284
Loans and borrowings (current & non-current)     908     60,480     565     37,632
Trade payables     184     12,281     191     12,723
Equity     1,731     1,15,264     1,714     1,14,112
           
 

All amounts in millions, except EPS
       

All US dollar amounts based on convenience translation rate of 1 USD = Rs. 66.58
 

Revenue Mix by Segment [Year on year]
Particulars     Q2 FY 17     Q2 FY 16     Growth %
    ($)     (Rs.)    

%
    ($)     (Rs.)    

%
   
Global Generics     435     28,995     81     492     32,768     82     -12
North America           16,134                 18,563           -13
Europe*           1,776                 2,124           -16
India           6,251                 5,464           14
Emerging Markets #           4,834                 6,617           -27
PSAI     87     5,784     16     89     5,918     15     -2
North America           1,135                 692           64
Europe           2,095                 2,426           -14
India           575                 724           -21
Rest of World           1,979                 2,076           -5
Proprietary Products & Others     16     1,078     3     18     1,203     3     -10
Total     539     35,857     100     599     39,889     100     -10
                   
 

Revenue Mix by Segment [Sequential]
Particulars     Q2 FY 17     Q1 FY 17     Growth %
    ($)     (Rs.)    

%
    ($)     (Rs.)    

%
   
Global Generics     435     28,995     81     400     26,638     82     9%
North America           16,134                 15,523    

 
    4%
Europe*           1,776                 1,615           10%
India           6,251                 5,223           20%
Emerging Markets #           4,834                 4,277           13%
PSAI     87     5,784     16     70     4,692     15     23%
North America           1,135                 643           77%
Europe           2,095                 1,947           8%
India           575                 372           55%
Rest of World           1,979                 1,730           14%
Proprietary Products & Others     16     1,078     3     15     1,015     3     6%
Total     539     35,857     100     486     32,345     100     11%
                   

* 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 (GG)

Revenues from GG segment at Rs. 29.0 billion, year-on-year decline of 12%; decline primarily on account of lower contribution from North America and loss of sales from Venezuela. However, all the businesses have grown sequentially.
  • Revenues from North America at Rs. 16.1 billion. Year-on-year decline of 13% is primarily on account of increased competition in valgancyclovir and injectable franchise, coupled with pricing pressure and moderation in volumes off-take.During the quarter we launched 4 new products, i.e. omeprazole sodium bi-carbonate, nitroglycerin SLT, paricalcitol injection and bupropion SR.As of 30 th September 2016, cumulatively 85 generic filings are pending for approval with the USFDA (83 ANDAs and 2 NDAs under 505(b)(2) route). Of these 83 ANDAs, 56 are Para IVs out of which we believe 19 have 'First to File' status. Further, these 83 ANDAs include 7 ANDAs, acquired from Teva, of which 6 are Para IVs.
  • Revenues from Emerging Markets at Rs. 4.8 billion, year-on-year decline of 27%. [Ex-Venezuela: decline of 9%]
    • Revenues from Russia at Rs. 2.7 billion, year-on-year decline of 8%. In constant currency it declined 5%. Normalizing for the base effect, the year-on-year H1 growth is 7%.
    • Revenues from other CIS countries and Romania market at Rs. 0.9 billion, year-on-year decline of 11%.
    • 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.
  • Revenues from India at Rs. 6.3 billion, year-on-year growth: 14%.
  • Revenues from Europe at Rs. 1.8 billion, year-on-year decline: 16%.

Pharmaceutical Services and Active Ingredients (PSAI)
  • Revenues from PSAI at Rs. 5.8 billion, year-on-year decline of 2%. On a sequential basis revenues registered a growth of 23% aided by improved order flow and supply situations
  • During the quarter, 15 DMFs were filed globally of which 3 were in the US. The cumulative number of DMF filings as of 30 th September, 2016 was 797.

Proprietary Products (PP)

Zembrace™ SymTouch™ (Suma 3 mg) injection and Sernivo™ (betamethasone dipropionate) Spray, 0.05% are gradually gaining traction.

Income Statement Highlights:

  • Gross profit margin at 56.0% and declined by ~530 bps over that of previous year, primarily on account of lower sales due to increased competitive intensity in some of our key molecules in the US. Gross profit margin for GG and PSAI business segments are at 62.3% and 22.0% respectively.
  • SG&A expenses at Rs. 11.8 billion, year-on-year increase of 6%.Given the Bombay High Court's dismissal of the writ petition filed by the IPA (Indian Pharmaceutical Alliance) regarding price controls by the NPPA (National Pharmaceutical Pricing Authority), the Company has accrued a potential liability of Rs. 344 million during the quarter.The net increase, adjusted for the above NPPA provision, is largely due to annual increments, additional manpower deployment in the past 12 months and other sales and marketing spend for events specific to this quarter.The sequential decline, adjusted for the above NPPA provision, is primarily on account of the reduced (a) remediation related costs and (b) launch spends by PP in the first quarter.
  • Research & development expenses at Rs. 5.2 billion. As a % to Revenues- Q2 FY17:14.5% | Q1 FY17: 14.8% | Q2 FY16: 11.2%. Current quarter also includes some spend towards the IPR&D assets in-licensed from Xenoport and Eisai. Continued focus on building complex generics, biosimilars and differentiated products pipeline.
  • Net Finance income at Rs. 365 million compared to the net finance expense of Rs. 216 million in Q2 FY16. The incremental benefit of Rs. 581 million is on account of:
    • Net foreign exchange gain of Rs. 37 million in the current quarter vs net foreign exchange loss of Rs. 388 million in the previous year
    • Increase in profit on sales of investments by Rs. 276 million.
    • Net increase in interest expense of Rs. 118 million.
  • Profit after Tax at Rs. 2.9 billion
  • Diluted earnings per share is at Rs. 17.8
  • Capital expenditure is at Rs. 3.1 billion.

Earnings Call Details (06:30 pm IST, 09:00 am EDT, October 25, 2016)

The Company will host an earnings call 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 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.

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