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).

* 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.”

* 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 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.

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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