Dr. Reddy’s Q1 FY14 Financial Results

HYDERABAD, India

Dr. Reddy’s Laboratories Ltd. (NYSE: RDY) today announced its unaudited consolidated financial results for the quarter ended June 30, 2013 under International Financial Reporting Standards (IFRS).

Key Highlights (Q1 FY14)

• Consolidated revenues for Q1 FY14 at Rs. 28.4 billion, recorded YoY growth of 12%.
  • Revenues from the Global Generics segment for Q1 FY14 at Rs. 21.9 billion, YoY growth of 15%.
  • Revenues from the PSAI segment for Q1 FY14 at Rs. 5.9 billion, YoY growth of 6%.
• R&D expenses for Q1 FY14 increased by 55% to reach Rs. 2.4 billion, 8.5% of revenues as compared to 6.2% of revenues in Q1 FY13.
• Selling, general & administrative (SG&A) expenses for Q1 FY14 increased by only 6% and stood at Rs. 8.8 billion, 30.9% to revenues as compared to 32.6% to revenues in Q1 FY13.
• EBITDA for Q1 FY14 at Rs. 5.7 billion, 20% of revenues and has recorded a YoY growth of 13%.
• PAT for Q1 FY14 at Rs. 3.6 billion, 13% of revenues and has recorded a YoY growth of 7%.
• Adjusted PAT* for Q1 FY14 at Rs. 3.2 billion, 11% of revenues with a YoY growth of 12%
• During the quarter, the company launched 18 new generic products, filed 12 new product registrations and filed 5 DMFs globally.

* Q1 FY14 normalized to the FY14 annual effective tax rate and Q1 FY13 normalized to the FY13 annual effective tax rate

* Q1 FY14 normalized to the FY14 annual effective tax rate and Q1 FY13 normalized to the FY13 annual effective tax rate

Segmental Analysis

Global Generics

Revenues from Global Generics segment at Rs. 21.9 billion recorded a YoY growth of 15%. Growth was primarily driven by North America and Emerging market territories.

• Revenues from North America at Rs. 10.9 billion, recorded a YoY growth of 37%. Growth was primarily driven by:
  • Key difficult to synthesize products with limited competition launched during rest of the quarters of the previous year, i.e. montelukast granules, finasteride 1mg, isotretinoin, zoledronic acid (4mg/5mL), metoprolol succinate extended release, etc.

  • Two new products which have been launched during the quarter – zoledronic acid (5mg/100mL) injection and lamotrigine XL.

  • Significant traction in market share of products such as tacrolimus, fondaparinux, etc. on a YoY basis.

During the quarter, 2 ANDAs were filed. Cumulatively, 64 ANDAs are pending for approval with the USFDA of which 38 are Para IVs and we believe 8 to have ‘First To File’ status.

• Revenues from Emerging Markets (which include Russia, CIS countries and RoW territories) for Q1 FY14 at Rs. 6.0 billion, YoY growth of 9%.
  • Revenues from Russia at Rs. 3.7 billion, YoY growth of 4%. Growth was muted primarily on account of high base effect of the previous year and changes in the market stocking pattern.
  • Revenues from CIS markets at Rs. 0.8 billion, YoY growth of 28%. Growth was largely driven by volume uptake of existing products and introduction of new products in Ukraine.
  • Revenues from RoW territories stood at Rs. 1.5 billion, YoY growth of 12% despite the devaluation impact in Venezuela.
• Revenues from India for Q1 FY14 at Rs. 3.5 billion remained flat YoY.

  • Implementation of the new Pricing Policy 2012, which led to destocking in the trade, coupled with the Maharashtra trade strike had an adverse effect on the revenues for the quarter.

• Revenues from Europe for Q1 FY14 at Rs. 1.6 billion declined YoY by 28%.
  • Revenues from Germany for Q1 FY14 at Rs. 1.1 billion declined YoY by 26%.

Pharmaceutical Services and Active Ingredients (PSAI)

• Revenues from PSAI for Q1 FY14 at Rs. 5.9 billion, YoY growth of 6%. Muted growth on the back of lower number of ‘launch molecules’ to our customers during the quarter.
• During the quarter, 5 DMFs were filed globally, including 3 in the US. The cumulative number of DMF filings as of June 30, 2013 is 581.

Income Statement Highlights:

• Gross profit margin for Q1 FY14 stood at 52.8%, marginal drop of 50 basis points compared to Q1 FY13. Corresponding values for Global Generics and PSAI segments for the quarter are at 61.6% and 19% respectively. GG gross margin improved primarily on account of higher contribution from new product launches in North America Generics, where as PSAI gross margin declined, primarily on the back of lower number of launch molecules to our customers and relatively higher overheads during the quarter.
• Selling, general and administration (SG&A) expenses including amortization at Rs. 8.8 billion increased YoY by only 6%. SG&A expenses for Q1 FY14 stood at 30.9% to sales as compared to 32.6% to sales in Q1 FY13.
• Research & development expenses stood at Rs. 2.4 billion, YoY growth of 55%; 8.5% of revenues in Q1 FY14 as compared to 6.2% of revenues in Q1 FY13. The increase is in line with the increased focus on complex formulations, differentiated portfolio and biosimilars.
• Net Finance expense is at Rs. 70 million in Q1 FY14 compared to Rs. 212 million in Q1 FY13. The change is on account of:
  • Net forex loss of Rs. 131 million in Q1 FY14 as compared to Rs. 209 million in Q1 FY13.
  • Net interest income of Rs. 61 million in Q1 FY14 compared to net interest expense of Rs. 3 million in Q1 FY13.
• EBITDA for Q1 FY14 at Rs. 5.7 billion, 20% of revenues with a YoY growth of 13%.
• Profit after Tax in Q1 FY14 at Rs. 3.6 billion, 13% of revenues with a YoY growth of 7%.
• *Adjusted Profit after tax in Q1 FY14 at Rs. 3.2 billion, YoY growth of 12%.
• Diluted earnings per share in Q1 FY 14 are Rs. 21.17
• Capital expenditure for Q1 FY14 is Rs. 2.0 billion.

* Q1 FY14 normalized to the FY14 annual effective tax rate and Q1 FY13 normalized to the FY13 annual effective tax rate