Dr. Reddy’s Q3 and 9M FY17 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, 2016 under International Financial Reporting Standards (IFRS).

Q3 FY17: Key Highlights

• Revenues at Rs. 37.1 billion: QoQ growth: 3%
  • YoY decline: 7%
• Gross Profit Margin at 59.1%.
• Research & Development (R&D) spend at Rs. 5.0 billion. [13.4% of Revenues]
• Selling, general & administrative (SG&A) expenses at Rs. 11.3 billion [YoY decline: 6%]
• EBITDA at Rs. 8.8 billion [23.7% of Revenues]
• Profit after tax at Rs. 4.7 billion [12.7% of Revenues]

9M FY17: Key Highlights

• Revenues at Rs. 105.3 billion: YoY decline: 10%
• Gross Profit Margin at 57.2%.
• Research & Development (R&D) spend at Rs. 15.0 billion. [14.2% of Revenues]
• Selling, general & administrative (SG&A) expenses at Rs. 35.4 billion [YoY increase: 4%]
• EBITDA at Rs. 19.2 billion [18.2% of Revenues]
• Profit after tax at Rs. 8.9 billion [8.5% of Revenues]

Commenting on the results, Co-chairman and CEO, G V Prasad said “Our performance in Q3 has delivered a modest sequential revenue growth of 3% over the previous quarter. Our EBITDA has improved significantly from the last quarter to Rs. 8.8 billion, on the back of enhanced emphasis on operational efficiencies and controlling of SG&A costs across all our businesses.”

Segmental Analysis

Global Generics (GG)

Revenues from GG segment at Rs. 30.6 billion, year-on-year decline of 9%; primarily on account of lower contribution from North America and Venezuela. However, it grew by 6% sequentially.

• Revenues from North America at Rs. 16.6 billion. Year-on-year decline of 15%, primarily on account of increased competition in valgancyclovir and our injectables franchise coupled with continuing pricing pressure.
  
  During the quarter we launched 5 new products i.e. Aripiprazole, Lamotrigene ODT, Fluoxetine Tabs, Raloxifene HCl and Nystatin - Triamcinolone Cream.
  
  As of 31st December 2016, cumulatively 92 generic filings are pending for approval with the USFDA (90 ANDAs and 2 NDAs under 505(b)(2) route). Of these 90 ANDAs, 59 are Para IVs out of which we believe 20 have ‘First to File’ status. Further, these 90 ANDAs include 7 ANDAs, acquired from Teva, of which 6 are Para IVs.

• Revenues from Emerging Markets at Rs. 5.9 billion, year-on-year decline of 7%. [Ex-Venezuela: growth of 7%]
  • Revenues from Russia at Rs. 3.1 billion, year-on-year decline of 2%. In constant currency it declined by 5%.
  • Revenues from other CIS countries and Romania market at Rs. 1.0 billion, year-on-year growth of 16%.
  • Revenues from Rest of World (RoW) territories at Rs. 1.8 billion, year-on-year decline of 23% primarily on account of sales decline in Venezuela.
• Revenues from India at Rs. 5.9 billion, year-on-year growth: 2.4%.
• Revenues from Europe at Rs. 2.1 billion, year-on-year growth: 11%.

Pharmaceutical Services and Active Ingredients (PSAI)

• Revenues from PSAI at Rs. 5.4 billion, year-on-year growth of 6%. On a sequential basis revenues declined by 7%.
• During the quarter, 16 DMFs were filed globally of which 1 was in the US. The cumulative number of DMF filings as of 31st December, 2016 was 782.

Proprietary Products (PP)

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

Income Statement Highlights:

• Gross profit margin at 59.1% and declined by ~40 bps over that of previous year, primarily on account of price erosion in the US. This has been caused due to new competitor’s entry in some of key molecules. Gross profit margin for GG and PSAI business segments are at 64.1% and 28.3% respectively.
• SG&A expenses at Rs. 11.3 billion, year-on-year decline by 6%. After normalization of the Venezuela base effect and the settlement charge paid to Novartis wrt zoledronic acid in previous year, there is a marginal increase which is largely attributable to normal salary increments, headcount and other costs.
  
  Sequentially, there is a decline of 4%. Normalized for the NPPA charge that we took last quarter, there is no major variance.

• Research & development expenses at Rs. 5.0 billion. As a % to Revenues- Q3 FY 17:13.4% | Q2 FY 17: 14.5% | Q1 FY 17: 14.8%]. Current quarter also includes spend towards the IPR&D assets in-licensed from Xenoport and Eisai. Focus continues on building complex generics, biosimilars and differentiated products pipeline.
• Net Finance income at Rs. 44 million compared to the net finance expense of Rs. 62 million in Q3FY16. The incremental benefit of Rs. 106 million is on account of:
  • Net foreign exchange loss of Rs. 10 million in the current quarter vs net foreign exchange loss of Rs. 297 million in the previous year
  • Increase in profit on sales of investments by Rs. 36 million.
  • Net increase in interest expense of Rs. 218 million.
• Profit after Tax at Rs. 4.7 billion
• Diluted earnings per share is at Rs. 28.32
• Capital expenditure is at Rs. 3.0 billion.

Earnings Call Details (06:30 pm IST, 08:00 am EST, February 4, 2017)

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

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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