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Dr. Reddy's Q2 and H1 FY16 Financial Results
[October 29, 2015]

Dr. Reddy's Q2 and H1 FY16 Financial Results


Dr. Reddy's Laboratories Ltd. (NYSE: RDY) (BSE: 500124) (NSE: DRREDDY) today announced its consolidated financial results for the quarter ended September 30, 2015 under International Financial Reporting Standards (IFRS).

Q2 FY16: Key Highlights

  • Consolidated revenues at Rs. 39.9 billion, year-on-year growth of 11%. In constant currency terms the revenue growth is 14%
  • Gross Profit Margin at 61.3%, improved by 285 bps over last year
  • Research & Development (R&D) spend at Rs. 4.5 billion. Continued focus on building complex generics and differentiated products pipeline
  • Selling, general & administrative (SG&A) expenses at Rs. 11.1 billion. Marginal year-on-year increase. Year-on-year drop seen by ~200 bps in percentage to sales
  • EBITDA at Rs. 11.4 billion, 28.6% of revenues, strong year-on-year growth of 31%
  • Profit after tax at Rs. 7.2 billion, strong year-on-year growth of 26%. Diluted EPS at Rs. 42.2

Commenting on the results, Dr. Reddy's co-chairman and CEO, GV Prasad said, "I am pleased with our performance for this quarter. We had robust sales growth across our markets of US, India and Europe, supported by new products that were launched in the last twelve months. Our investment in R&D remains at 11%, as we continue on our strategy of building an exciting pipeline of assets across our businesses. While satisfied with our performance, we are intensely focused on enhancing our quality management system and infrastructure to meet evolving global requirements and address the pending cGMP related matters at some of our facilities."





 

All amounts in millions, except EPS

All US dollar amounts based on convenience translation rate of 1 USD = Rs. 65.50

   
Dr. Reddy's Laboratories Limited and Subsidiaries
Consolidated Income Statement
 
Particulars Q2 FY 16     Q2 FY 15     Growth %
    ($)     (Rs.)     %       ($)     (Rs.)     %        
Revenues 609     39,890     100.0 548     35,879     100.0 11
Cost of revenues     235       15,421       38.7       227       14,893       41.5       4
Gross profit     374       24,469       61.3       320       20,986       58.5       17
Operating Expenses
Selling, general & administrative expenses 169 11,058 27.7 163 10,673 29.7 4
Research and development expenses 68 4,473 11.2 63 4,113 11.5 9
Other operating expense / (income)     (5 )     (320 )     (0.8 )     (4 )     (265 )     (0.7 )     20
Results from operating activities     141       9,258       23.2       99       6,465       18.0       43
Finance expense / (income), net 3 216 0.5 (6 ) (421 ) (1.2 )
Share of profit of equity accounted investees, net of income tax     (1 )     (56 )     (0.1 )     (1 )     (51 )     (0.1 )     10
Profit before income tax     139       9,098       22.8       106       6,937       19.3       31
Income tax expense     29       1,879       4.7       18       1,196       3.3       57
Profit for the period     110       7,219       18.1       88       5,741       16.0       26
                                           
Diluted EPS     0.64       42.20             0.51       33.60             26
 
 

EBITDA Computation

 
Particulars     Q2 FY 16     Q2 FY 15
    ($)     (Rs.)     ($)     (Rs.)
Profit before tax 139     9,098 106     6,937
Interest (income) / expense net* (3 ) (172 ) (3 ) (178 )
Depreciation 25 1,606 22 1,409
Amortization     13       860       8       548  
EBITDA     174       11,392       133       8,715  
EBITDA (% to sales)           28.6             24.3  
 

* Includes dividend and profit on sale of investments

 
 

All amounts in millions, except EPS

All US dollar amounts based on convenience translation rate of 1 USD = Rs. 65.50

 
Key Balance Sheet Items
 
Particulars     As on 30th Sep 15    

As on 30th Jun 15

    ($)     (Rs.)     ($)     (Rs.)
Cash and cash equivalents and Other current Investments     520     34,050     536     35,117
Trade receivables     654     42,840     642     42,030
Inventories     414     27,147     399     26,149
Property, plant and equipment     779     51,055     754     49,386
Goodwill and Other Intangible assets     369     24,155     368     24,106
Loans and borrowings (current & non-current)     566     37,072     632     41,400
Trade payables     195     12,766     175     11,448
Equity     1,855     121,499     1,815     118,885
       
 

Revenue Mix by Segment

 
Particulars     Q2 FY 16     Q2 FY 15     Growth %
    ($)     (Rs.)     %     ($)     (Rs.)     %    
Global Generics     500       32,768     82     437       28,606     80     15  
North America           18,563                 14,030           32  
Europe*           2,124                 1,288           65  
India           5,464                 4,799           14  
Emerging Markets#           6,617                 8,489           (22 )
PSAI     90       5,918     15     98       6,392     18     (7 )
North America           692                 1,298           (47 )
Europe           2,426                 2,548           (5 )
India           724                 896           (19 )
Rest of World           2,076                 1,650           26  
Proprietary Products & Others     18       1,204     3     13       880     2     37  
Total     609       39,890     100     548       35,879     100     11  
               

* Europe referred above 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
Note: Effective Q1 FY16, there has been a change in the monitoring of performance of one product from Global Generics to Proprietary Products. Consequently, revenues and related costs of this product for the previous periods have been reclassified to conform to such change.

Segmental Analysis

Global Generics

Revenues from Global Generics segment for Q2 FY16 are at Rs. 32.8 billion, year-on-year growth of 15%, primarily driven by North America, Europe and India.

  • Revenues from North America for Q2 FY16 at Rs. 18.6 billion, year-on-year growth of 32%. Primarily on account of:
    • Sustained performance of the injectable franchise and market share gains in key molecules
    • Contribution from products launched subsequent to quarter ended September 30, 2014 majorly being valganciclovir, sirolimus, memantine and Habitrol®.

      Two new product filings in the US during the quarter. Cumulatively, 76 ANDAs are pending for approval with the USFDA of which 50 are Para IVs out of which we believe 18 to have 'First to File' status.
  • Revenues from Emerging Markets for Q2 FY16 at Rs. 6.6 billion, year-on-year decline of 22%. Performance was flat in constant currency terms where in the growth in Russia and CISR regions was offset by decline in Venezuela.
    • Revenues from Russia at Rs. 2.9 billion, year-on-year decline of 29% primarily on account of depreciation of rouble. In constant currency revenues grew by 11%.
    • Revenues from other CIS countries and Romania market at Rs. 1.0 billion, and grew by 25% year-on-year.
    • Revenues from Rest of World (RoW) territories at Rs. 2.7 billion recorded year-on-year decline of 24%.
  • Revenues from India for Q2 FY16 at Rs. 5.5 billion, year-on-year growth of 14%.
    • Adjusted for some of the despatches which got spilled over to October, growth for the quarter is healthy and in line with expectations
    • Select portfolio of products acquired from UCB fully integrated into our supply chain
  • Revenues from Europe for Q2 FY16 at Rs. 2.1 billion, year-on-year growth of 65%. Growth was primarily driven by new products (aripiprazole and pregabalin) launched during the second half of fiscal 2015.

Pharmaceutical Services and Active Ingredients (PSAI)

  • Revenues from PSAI at Rs. 5.9 billion, and declined by 7% year-on-year.
  • During the quarter, 10 DMFs were filed globally and 3 in the US. The cumulative number of DMF filings as of September 30, 2015 is 755.

Income Statement Highlights:

  • Gross profit margin at 61.3% and registered an improvement of ~285 bps over that of previous year. Gross profit margin for Global Generics (GG) and PSAI business segments are at 67.3% and 25.8% respectively.
  • Selling, General and Administrative (SG&A) expenses at Rs. 11.1 billion, year-on-year increase of 4%. SG&A as % to sales improved by ~200 bps over previous year.
  • Research & development expenses at Rs. 4.5 billion, year-on-year increase of 9%. 11.2% of revenues in Q2 FY16 as compared to 11.5% of revenues in Q2 FY15. The increase is in line with our planned scale-up in development activities.
  • Net Finance expense at Rs. 216 million compared to income of Rs. 421 million in Q2 FY15. The incremental charge of Rs. 637 million is on account of:
    • Net forex loss of Rs. 349 million in the current quarter vs net foreign exchange gain of Rs. 243 million in the previous year
    • Certain monetary assets and liabilities of the Venezuelan subsidiary that may not qualify for translation at the CENCOEX rate of VEF 6.3 per USD, have been translated at the SIMADI rate of VEF 198.5 per USD and the resultant charge of Rs. 39 million has been recorded as foreign exchange loss.
    • Decline in profit on sales of investments by Rs. 91 million.
    • Net increase in interest income of Rs. 85 million.
  • Profit after Tax at Rs. 7.2 billion, 18% of revenues, year-on-year growth of 26%.
  • Diluted earnings per share is at Rs. 42.2
  • Capital expenditure is at Rs. 3.0 billion.

Update on the API facilities:

During October 2015, two of the Company's API customers received ANDA approval rescission letters from the U.S. Food and Drug Administration (USFDA). These ANDAs of customers were approved in January and February 2015, post USFDA's inspection of the Company's API facilities. Each rescission letter cites that the Company's API facility was classified as Potential 'Official Action Indicated' (OAI) on the date of approval.

Dr. Reddy's continues to cooperate with the USFDA in connection with pending Form 483 observations and awaits further advice from the Agency on this matter.

Earnings Call Details (06.30 pm IST, October 29, 2015)

The Company will host an earnings call at 06.30 pm IST on October 29, 2015, 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. (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 anti-infectives. Dr. Reddy's operates in markets across the globe. Our major markets include - USA, Russia & CIS, Venezuela and India. 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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