Dr. Reddy’s Q4 and FY18 Financial Results

Dr. Reddy’s Laboratories Ltd. (BSE: 500124 | NSE: DRREDDY | NYSE: RDY) today announced its consolidated financial results for the fourth quarter and full year ended March 31, 2018 under International Financial Reporting Standards (IFRS).

Q4 Performance Summary

FY18 Performance Summary

Rs.3,535 Cr

Rs.14,203 Cr

Revenue

Revenue

[Down: 7% QoQ; 1% YoY]

[Up: 1% YoY]

53.5%

53.7%

Gross Margin

Gross Margin

[Q3 FY18: 56.3%; Q4 FY17: 51.2%]

[FY17: 55.6%]

Rs.1,207 Cr

Rs.4,691 Cr

SGNA expenses

SGNA expenses

[Up: 10% YoY]

[Up: 1% YoY]

Rs.435 Cr

Rs.1,826 Cr

R&D expenses

R&D expenses

[12.3% of Revenues]

[12.9% of Revenues]

Rs.375 Cr

Rs.1,434 Cr

Profit before Tax

Profit before Tax

[10.6% of Revenues]

[10.1% of Revenues]

Rs.302 Cr

Rs.981 Cr

Profit after Tax

Profit after Tax

[8.5% of Revenues]

[6.9% of Revenues]

Note: During 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 charge of Rs. 130 Crores for the full year.

Commenting on the results, CEO and Co-chairman, G.V. Prasad said, “We concluded a challenging year for Dr. Reddy’s with a relatively muted fourth quarter’s performance. This was mainly on account of continuing headwinds in the U.S markets and a temporary drop in sales in Russia, attributable to a shift in the channel purchasing pattern.

Looking ahead, we will continue to work diligently on resolving pending regulatory issues. We will also focus on accelerating new products to market and improving our approval process.”

All amounts in millions, except EPS
All US dollar amounts based on convenience translation rate of I USD = Rs.65.11

Dr. Reddy’s Laboratories Limited and Subsidiaries
Consolidated Income Statement
Particulars

Q4 FY18

Q4 FY17YoY
Gr %
Q3 FY18QoQ
Gr%
($)(Rs.)($)(Rs.)

($)

(Rs.)

Revenues

54335,34954635,542(1)58538,060(7)
Cost of Revenues 253 16,454 267 17,360 (5) 256 16,649 (1)
Gross Profit29018,89527918,182432921,411(12)
Operating Expenses
Selling, General & Administrative expenses 185 12,067 169 10,973 10 185 12,048 0
Research and Development expenses 67 4,348 70 4,579 (5) 72 4,667 (7)
Other operating (income) / expense (3) (167) (8) (505) (67) (5) (313) (46)
Results from operating activities412,647483,135(16)775,009(47)
Net finance (income) / expense (16) (1,032) 1 48 (13) (851) 21
Share of (profit) / loss of equity accounted investees (1) (69) (2) (102) (32) (1) (85) (18)
Profit before income tax583,748493,18918915,945(37)
Income tax expense 11 726 1 64 40 2,601 (72)
Profit for the period463,022483,125(3)513,344(10)
---
Diluted Earnings Per Share (EPS)0.2818.180.2918.83(3)0.3120.13(10)
As % to RevenuesQ4 FY18Q4 FY17Q3 FY18
Gross Profit 53.5 51.2 56.3
SG&A 34.1 30.9 31.7
R&D 12.3 12.9 12.3
PBT 10.6 9.0 15.6
PAT 8.5 8.8 8.8

EBITDA Computation

ParticularsQ4 FY18Q4 FY17Q3 FY18
($)(Rs.)($)(Rs.)($)(Rs.)
Profit before Income Tax 58 3,748 49 3,189 91 5,945
Interest (income) net* (15) (1,001) (1) (90) (14) (881)
Depreciation # 32 2,109 36 2,338 32 2,089
Amortization # 14 921 13 866 14 902
EBITDA895,777976,3031248,055

* - Includes income from Investments # includes impairment charge

Revenue Mix by Segment

ParticularsQ4 FY18Q4 FY17YoY
Growth %
Q3 FY18QoQ
Growth %
(Rs.)(Rs.)(Rs.)
Global Generics27,83629,138(4)30,105(8)
North America 14,487 15,349 (6) 16,073 (10)
Europe* 1,711 2,066 (17) 2,006 (15)
India 6,138 5,711 7 6,126 0
Emerging Markets # 5,500 6,012 (9) 5,900 (7)
Pharmaceutical Services and Active Ingredients (PSAI)6,2515,401165,43615
Proprietary Products & Others1,2621,003262,519(50)
Total35,34935,542(1)38,060(7)
* Europe primarily includes Germany and UK
# Emerging Markets refers to Russia, other CIS countries, Romania and Rest of the World markets
Dr. Reddy’s Laboratories Limited and Subsidiaries
Consolidated Income Statement
ParticularsFY 18FY 17Growth %
($)(Rs.)%($)(Rs.)%
Revenues2,1811,42,028100.02,1631,40,809100.01
Cost of Revenues 1,009 65,724 46.3 959 62,453 44.4 5
Gross Profit1,17276,30453.71,20378,35655.6(3)
Operating Expenses
Selling, General & Administrative expenses 720 46,910 33.0 712 46,372 32.9 1
Research and Development expenses 281 18,265 12.9 300 19,551 13.9 (7)
Other operating expense / (income) (12) (788) (0.6) (16) (1,065) (0.8) (26)
Results from operating activities18311,9178.420713,4989.6(12)
Finance (income), net (32) (2,080) (1.5) (12) (806) (0.6) 158
Share of (profit) of equity accounted investees, net of income tax (5) (344) (0.2) (5) (349) (0.2) (1)
Profit before income tax22014,34110.122514,65310.4(2)
Income tax expense 70 4,535 3.2 40 2,614 1.9 73
Profit for the period1519,8066.918512,0398.5(19)
Diluted Earnings Per Share (EPS)0.9159.001.11

72.09

(18)

EBITDA Computation

ParticularsFY 18FY 17
($)(Rs.)($)(Rs.)
Profit before income tax 220 14,341 225 14,653
Interest (income) / expense net* (31) (2,022) (14) (880)
Depreciation # 127 8,285 122 7,931
Amortization # 53 3,477 58 3,791
EBITDA37024,08139225,495
EBITDA (% to revenues)17.018.1

* - Includes income from Investments # includes impairment charge

Key Balance Sheet Items

ParticularsAs on 31st Mar 2018As on 31st Dec 2017As on 31st Mar 2017
($)(Rs.)($)(Rs.)($)(Rs.)
Cash and cash equivalents and current investments 322 20,967 337 21,958 279 18,136
Trade receivables (current & non-current) 626 40,786 654 42,593 588 38,271
Inventories 447 29,089 412 26,825 438 28,529
Property, plant and equipment 889 57,869 894 58,189 878 57,160
Goodwill and Other Intangible assets 747 48,610 740 48,182 748 48,677
Loans and borrowings (current & non-current) 779 50,714 843 54,911 755 49,185
Trade payables 247 16,052 224 14,575 206 13,417
Equity 1,942 1,26,460 1,900

1,23,685

1,905 1,24,044

Revenue Mix by Segment [Year on year]

ParticularsFY 18FY 17Growth %
($)(Rs.) % ($)(Rs.) %
Global Generics1,7511,14,01480%1,7731,15,40982%(1)
North America 59,822 63,601 (6)
Europe* 8,217 7,606 8
India 23,322 23,131 1
Emerging Markets# 22,653 21,071 8
Pharmaceutical Services and Active Ingredients (PSAI)33821,99216%32721,27715%3
Proprietary Products & Others926,0224%634,1233%46
Total2,1811,42,028100%2,1631,40,809100%1

* Europe primarily includes Germany and UK

# Emerging Markets refers to Russia, other CIS countries, Romania and Rest of the World markets including Venezuela

Segmental Analysis [FY18]

Global Generics (GG)

Revenues from GG segment at Rs. 114 billion. Year-on-year (YoY) decline of 1%

Decline primarily on account of lower contribution from North America generics markets due to higher price erosion and unfavorable US dollar conversion

  • Revenues from North America at Rs. 59.8 billion, YoY decline of 6%. Decline primarily on account of higher price erosions due to channel consolidation and increased competition in some of our key molecules namely valganciclovir, azacitidine, decitabine, etc. The above is partly offset by new products contribution.
  • Revenues for the 4th Quarter at Rs.14.5 billion, YoY decline of 6% and sequential decline of 10%. During the 4th Quarter, we launched 3 new products - palonosetron inj, tetrabenazine and OTC levocetrizine

As of 31st March 2018, cumulatively 110 generic filings are pending for approval with the USFDA (107 ANDAs and 3 NDAs under 505(b)(2) route). Of these 107 ANDAs, 63 are Para IVs out of which we believe 30 have ‘First to File’ status.

  • Revenues from Emerging Markets at Rs.22.7 billion, YoY growth of 8%.
    • Revenues from Russia at Rs.12.6 billion. YoY growth of 9%. Adjusted for forex, growth driven by new launches. Revenues for the 4th Quarter at Rs.2.6 billion, YoY decline of 25% primarily on account of lower off-take by the channel.
    • Revenues from other CIS countries and Romania at Rs.3.9 billion. YoY growth of 6%.
    • Revenues from Rest of World (RoW) territories at Rs.6.1 billion. YoY growth of 5%.
  • Revenues from India at Rs.23.3 billion, YoY growth of 1%. Revenues for 4th Quarter at Rs.6.1 billion, YoY growth of 7.5%. Normalizing for the GST transition related adjustments, adjusted growth for FY18 is ~8% and Q4 FY18 is ~16%.
  • Revenues from Europe at Rs.8.2 billion, YoY growth of 8%. Revenues for the 4th Quarter at Rs.1.7 billion, YoY decline of 17%, primarily due to higher price erosion and temporary supply disruptions.

Pharmaceutical Services and Active Ingredients (PSAI)

  • Revenues from PSAI at Rs.22.0 billion, YoY growth of 3%. Growth driven by key molecules. Revenues for the 4th Quarter at Rs.6.3 billion, YoY growth of 16%
  • During the quarter, we have filed 5 DMFs in the US.

Proprietary Products (PP)

  • Revenues from PP at Rs.4.2 billion
  • During the year USFDA approved IMPOYZ™ (clobetasol propionate) Cream 0.025%. In line with the existing out-licensing agreement with Encore Dermatalogy Inc. this approval triggered milestone recognition of Rs.1.5 billion.

Income Statement Highlights [FY18]

  • Gross profit margin at 53.7%.
    • Declined by ~190 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 58.9% and 20.2% respectively.
    • Gross profit margin for the 4th Quarter at 53.5% (GG: 59.3%, PSAI: 24.2%). Sequential decline is primarily on account of (a) increased competitive intensity in some of our key products in the US (b) lower contribution from Russia and (c) preceding Quarter had out-licensing income in our Proprietary Products business
  • SG&A expenses at Rs.46.9 billion, marginal increase of 1%. SG&A expenses for the 4th Quarter at Rs.12.1 billion, year-on-year increase of 10%.
  • Research & development (R&D) expenses at Rs.18.3 billion. As % to Revenues - FY18: 12.9% | FY 17: 13.9%. Focus continues on building complex generics, bio-similars and differentiated products pipeline. R&D expenses for the 4th Quarter stood at Rs.4.3 billion, as % to revenues at 12.3%.
  • Net Finance income at Rs.2.1 billion compared to Rs.0.8 billion in FY17. The incremental income is primarily on account of increase in profit on sales of investments by Rs.1,314 million.
  • Profit after Tax at Rs.9.8 billion. Profit after tax during the 4th Quarter stood at Rs.3.0 billion. During the year, 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 charge of Rs.1.3 billion being recorded under tax expense for the full year.
  • Diluted earnings per share is at Rs.59.0. Diluted earnings per share during the 4th Quarter at Rs.18.2
  • Capital expenditure for FY18 is at Rs.9.2 billion. Capital expenditure for Q4 FY18 is at Rs.1.5 billion.

The Board has recommended payment of a dividend of Rs. 20 per equity share of face value Rs. 5/- each (400% of face value) for the year ended March 31, 2018 subject to approval of members

Earnings Call Details (06:30 pm IST, 09:00 am EDT, May 22, 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 6280 1219

Secondary number:

91 22 7115 8120

The numbers listed above are universally accessible from all networks and all countries.

Local Access number (India):

91 70456 71221

International Toll Free Number

USA

18667462133

UK

08081011573

Singapore

8001012045

Hong Kong

800964448

Playback of call:

91 22 7194 5757, 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.

Contacts:

Dr. Reddy’s Laboratories Ltd.
INVESTOR RELATIONS
SAUNAK SAVLA, +91-40-4900 2135
saunaks@drreddys.com
or
MEDIA RELATIONS
CALVIN PRINTER, +91-40-4900 2121
calvinprinter@drreddys.com

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