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Dr. Reddy's Q3 and 9M FY18 Financial Results
[January 25, 2018]

Dr. Reddy's Q3 and 9M FY18 Financial Results


Dr. Reddy's Laboratories Ltd. (BSE: 500124 | NSE: DRREDDY | NYSE: RDY) today announced its consolidated financial results for the third quarter and nine months ended December 31, 2017 under International Financial Reporting Standards (IFRS).





Q3 Performance Summary

     

9M Performance Summary

Rs.3,806 Cr

Rs.10,668 Cr

Revenue

Revenue

[Up: 7% QoQ, Up: 3% YoY] [Up: 1% YoY]
 

56.3%

53.8%

Gross Margin

Gross Margin

[Q2 FY18: 53.3%; Q3 FY17: 59.1%] [9M FY17: 57.2%]
 

Rs.1,205 Cr

Rs.3,484 Cr

SGNA expenses

SGNA expenses

[Up: 6% YoY] [Down: 2% YoY]
 

Rs.467 Cr

Rs.1,392 Cr

R&D expenses

R&D expenses

[12.3% of Revenues] [13.0% of Revenues]
 

Rs.806 Cr

Rs.1,830 Cr

EBITDA

EBITDA

[21.2% of Revenues] [17.2% of Revenues]
 

Rs.334 Cr*

Rs.678 Cr*

Profit after Tax

Profit after Tax

[8.8% of Revenues] [6.4% of Revenues]
 

* During Q3 FY18, the 'Tax Cuts and Jobs Act of 2017' was approved and enacted in the United States. Consequent to this enactment the deferred tax assets and liabilities of the US entity have been re-measured resulting in a one-time charge of Rs. 93 Crores. [Adjusted PAT for Q3 FY 18: Rs.427 Crores and 9M FY 18: Rs.771 Crores]

Commenting on the results, CEO and Co-chairman G.V. Prasad said, "We had a satisfactory third quarter performance, with all our key markets performing well. We recorded sequential revenue growth of 7%, despite continuing challenges such as price erosion in the U.S. Our first-cycle NDA approval of Impoyz™ is a significant milestone in the commercialization of our proprietary products pipeline. We will continue our focus on operational excellence and controlling of SG&A costs across the organisation."

All amounts in millions, except EPS

     

All US dollar amounts based on convenience translation rate of I USD = Rs. 63.83

 

Dr. Reddy's Laboratories Limited and Subsidiaries

Consolidated Income Statement

 
Particulars       Q3 FY 18   Q3 FY 17   Growth %
     

($)

 

  (Rs.)   %    

($)

 

  (Rs.)   %    
Revenues       596   38,060   100.0   581   37,065   100.0 3
Cost of revenues       261     16,649     43.7     238     15,166     40.9     10  
Gross profit       335     21,411     56.3     343     21,899     59.1     (2 )
Operating Expenses
Selling, general & administrative expenses 189 12,048 31.7 178 11,341 30.6 6
Research and development expenses 73 4,667 12.3 78 4,956 13.4 (6 )
Other operating expense / (income)       (5 )   (313 )   (0.8 )   (3 )   (187 )   (0.5 )   67  
Results from operating activities       78     5,009     13.2     91     5,789     15.6     (13 )
Finance expense / (income), net (13 ) (851 ) (2.2 ) (1 ) (44 ) (0.1 ) 1850
Share of (profit) of equity accounted investees, net of income tax       (1 )   (85 )   (0.2 )   (1 )   (89 )   (0.2 )   (5 )
Profit before income tax       93     5,945     15.6     93     5,922     16.0     0  
Income tax expense       41     2,601*   6.8     19     1,221     3.3     113  
Profit for the period       52     3,344     8.8     74     4,701     12.7     (29 )
                                 
Diluted EPS       0.32     20.13         0.44     28.32         (29 )

* ~Rs. 930 million impact on account of reforms in US tax laws

 

EBITDA Computation

 

Particulars

     

Q3 FY 18

 

Q3 FY 17

     

($)

 

 

(Rs.)

 

($)

 

 

(Rs.)

Profit before income tax 93   5,945   93   5,922
Interest (income) / expense net* (14 ) (881 ) (1 ) (53 )
Depreciation 33 2,089 30 1,936
Amortization 14 882 15 956
Impairment       0.3     20     0.5     32  
EBITDA       126     8,055     138     8,793  
EBITDA (% to revenues)           21.2         23.7  

* - Includes income from Investments

 

Key Balance Sheet Items

 
Particulars       As on 31st Dec 17   As on 30th Sep 17
     

($)

 

  (Rs.)  

($)

 

  (Rs.)
Cash and cash equivalents and Other current Investments       344     21,958   263     16,793
Trade receivables (current)       665     42,432   661     42,203
Inventories       420     26,825   423     26,998
Property, plant and equipment       912     58,189   907     57,905
Goodwill and Other Intangible assets       755     48,182   778     49,634
Loans and borrowings (current & non-current)       860     54,911   841     53,668
Trade payables       228     14,575   222     14,193
Equity       1,938     1,23,685   1,909     1,21,840
     

All amounts in millions, except EPS

     

All US dollar amounts based on convenience translation rate of I USD = Rs. 63.83

 

Revenue Mix by Segment [Year on year]

 
Particulars       Q3 FY 18   Q3 FY 17   Growth %
     

($)

 

  (Rs.)   %  

($)

 

  (Rs.)   %  
Global Generics       472     30,105   79   480     30,638   83   -2
North America           16,073           16,595       -3
Europe*           2,006           2,148       -7
India           6,126           5,947       3
Emerging Markets#           5,900           5,948       -1
PSAI       85     5,436   14   85     5,400   14   1
North America           863           1,259       -31
Europe           1,572           1,828       -14
India           627           409       53
Rest of World           2,374           1,904       25
Proprietary Products & Others       39     2,519   7   16     1,027   3   145
Total       596     38,060   100   581     37,065   100   3
         

Revenue Mix by Segment [Sequential]

 
Particulars       Q3 FY 18   Q2 FY 18

 

Growth %

     

($)

 

  (Rs.)  

%

 

($)

 

  (Rs.)  

%

 
Global Generics       472     30,105   79   448     28,618   81   5
North America           16,073           14,318       12
Europe*           2,006           2,424       -17
India           6,126           6,370       -4
Emerging Markets#           5,900           5,506       7
PSAI       85     5,436   14   89     5,654   16   -4
North America           863           962       -10
Europe           1,572           1,938       -19
India           627           436       44
Rest of World           2,374           2,318       2
Proprietary Products & Others       39     2,519   7   19     1,188   3   112
Total       596     38,060   100   556     35,460   100   7
               

* 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. 30.1 billion.

Sequential growth of 5%, primarily driven by the US and Emerging Markets.

Year-on-year decline of 2%, primarily on account of adverse foreign exchange as the US dollar depreciated by ~4% and lower contribution from Europe generics market.

  • Revenues from North America at Rs. 16.1 billion.
    • Sequential growth of 12%, primarily on account of contribution from new products major being sevelamer carbonate
    • Year-on-year decline of 3%, primarily on account of higher price erosions due to channel consolidation and increased competition in some of our key molecules, and impact of adverse foreign exchange. The above is partly offset by new products contribution.
    • As of 31st December 2017, cumulatively 102 generic filings are pending for approval with the USFDA (99 ANDAs and 3 NDAs under 505(b)(2) route). Of these 99 ANDAs, 59 are Para IVs out of which we believe 29 have 'First to File' status.
  • Revenues from Emerging Markets at Rs. 5.9 billion.
    • Revenues from Russia at Rs. 3.4 billion. Year-on-year growth of 9%. In constant currency i.e. in Rouble terms year-on-year growth is 5%.
    • Revenues from other CIS countries and Romania market at Rs. 1.0 billion. Year-on-year decline of 2%.
    • Revenues from Rest of World (RoW) territories at Rs. 1.5 billion. Year-on-year decline of 17%.
  • Revenues from India at Rs. 6.1 billion. Year-on-year growth of 3%. Normalizing for the GST (News - Alert) transition related adjustments, the comparable growth is ~11%.
  • Revenues from Europe at Rs. 2.0 billion. Year-on-year decline of 7%, primarily on account of higher price erosion in some of the key molecules coupled with temporary supply disruptions.

Pharmaceutical Services and Active Ingredients (PSAI)

  • Revenues from PSAI at Rs. 5.4 billion. Year-on-year growth of 1%.
  • During the quarter, 13 DMFs were filed globally of which 1 was in the US. The cumulative number of DMF filings as of 31st December, 2017 was 791.

Proprietary Products (PP)

  • Revenues from PP at Rs. 2.1 billion.
    During Q3 FY18 USFDA approved IMPOYZ™ (clobetasol propionate) Cream 0.025%. In line with the existing out licensing agreement with Encore Dermatology Inc. this approval triggered milestone recognition of Rs. 1.3 billion during Q3 FY18.

Income Statement Highlights:

  • Gross profit margin at 56.3%.
    • Improved by ~300 bps sequentially, aided by better product mix and milestone receipt of Rs. 1.3 billion in Proprietary Products.
    • Declined by ~280 bps over that of previous year primarily on account of higher price erosions, increased competitive intensity in some of our key molecules in the US and adverse foreign exchange impact.
    • Gross profit margin for GG and PSAI business segments are at 59.5% and 23.8% respectively.
  • SG&A expenses at Rs. 12.0 billion, an increase of 6%. During the quarter, a settlement agreement was entered into with the US Department of Justice on the litigation involving packaging against a payout of Rs. 319 million. The balance increase is on account of sales & marketing and other spends towards events specific to the quarter.
  • Research & development expenses at Rs. 4.7 billion, a decrease of 6%. As % to Revenues- Q3 FY18: 12.3% | Q2 FY 18: 11.8% | Q3 FY17: 13.4%. Focus continues on building complex generics, biosimilars and differentiated products pipeline.
  • Net Finance income at Rs. 851 million compared to Rs. 44 million in Q3 FY17. The incremental income of Rs. 807 million is on account of:
    • Increase in profit on sales of investments by Rs. 698 million.
    • Increase in net interest income by Rs. 129 million.
    • Net foreign exchange loss of Rs. 30 million in the current quarter vs net foreign exchange loss of Rs. 10 million in the previous year.
  • Profit after Tax at Rs. 3.3 billion. During the quarter, the 'Tax Cuts and Jobs Act of 2017' was approved and enacted in the United States. Consequent to this enactment the deferred tax assets and liabilities in the US entity have been re-measured resulting in a one-time charge of Rs. 930 million being recorded under tax expense.
  • Diluted earnings per share is at Rs. 20.13.
  • Capital expenditure is at Rs. 2.2 billion.

Earnings Call Details (06:30 pm IST, 08:00 am EST, January 25, 2018)

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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