On October 31, 2017 Dr. Reddy’s Laboratories Ltd. (BSE: 500124 | NSE: DRREDDY | NYSE: RDY) reported its consolidated financial results for the second quarter and half year ended September 30, 2017 under International Financial Reporting Standards (IFRS) (Press release, Dr Reddy’s, OCT 30, 2017, View Source [SID1234521341]).
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Q2 FY18: Key Highlights
Revenues at Rs. 35.5 billion [QoQ growth: 7%; YoY decline: 1%]
Gross Profit Margin at 53.3% [Q1 FY18: 51.6%; Q2FY 17: 56.0%]
Research & Development (R&D) spend at Rs. 4.2 billion. [11.8% of Revenues]
Selling, general & administrative (SG&A) expenses at Rs. 11.0 billion [YoY decrease: 6%]
EBITDA at Rs. 6.9 billion [19.4% of Revenues]
Profit after tax at Rs. 2.8 billion [8.0% of Revenues]
H1 FY18: Key Highlights
Revenues at Rs. 68.6 billion [YoY growth: 1%]
Gross Profit Margin at 52.5% [H1 FY17: 56.1%]
Research & Development (R&D) spend at Rs. 9.3 billion. [13.5% of Revenues]
Selling, general & administrative (SG&A) expenses at Rs. 22.8 billion [YoY decrease: 5%]
EBITDA at Rs. 10.2 billion [14.9% of Revenues]
Profit after tax at Rs. 3.4 billion [5.0% of Revenues]
Commenting on the results, CEO and Co-chairman, G.V. Prasad said, "Healthy performances in India, Emerging Markets, Europe and PSAI businesses, as well as continued focus on cost control, have contributed to sequential growth in our topline as well as bottom line, with an EBITDA increase of 105% over the previous quarter.
Looking ahead, we expect to see results from products launched in the U.S. during the first half of this fiscal. We will continue to focus on the launching of new products, as well as on improving operational efficiencies and quality management systems across the company."
All amounts in millions, except EPS
All US dollar amounts based on convenience translation rate of I USD = Rs. 65.30
Dr. Reddy’s Laboratories Limited and Subsidiaries
Consolidated Income Statement
Particulars Q2 FY 18 Q2 FY 17 Growth %
($) (Rs.) % ($) (Rs.) %
Revenues 543 35,460 100.0 549 35,857 100.0 (1 )
Cost of revenues 254 16,559 46.7 241 15,760 44.0 5
Gross profit 289 18,901 53.3 308 20,097 56.0 (6 )
Operating Expenses
Selling, general & administrative expenses 169 11,032 31.1 180 11,774 32.8 (6 )
Research and development expenses 64 4,175 11.8 80 5,214 14.5 (20 )
Other operating expense / (income) (2 ) (114 ) (0.3 ) (4 ) (277 ) (0.8 ) (59 )
Results from operating activities 58 3,808 10.7 52 3,386 9.4 12
Finance expense / (income), net 0 24 0.1 (6 ) (365 ) (1.0 )
Share of (profit) of equity accounted investees, net of income tax (1 ) (92 ) (0.3 ) (1 ) (84 ) (0.2 ) 10
Profit before income tax 59 3,876 10.9 59 3,835 10.7 1
Income tax expense 16 1,027 2.9 14 885 2.5 16
Profit for the period 44 2,849 8.0 45 2,950 8.2 (3 )
Diluted EPS 0.26 17.15 0.27 17.76 (3 )
EBITDA Computation
Particulars Q2 FY 18 Q2 FY 17
($) (Rs.) ($) (Rs.)
Profit before income tax 59 3,876 59 3,835
Interest (income) / expense net* 1 72 (5 ) (329 )
Depreciation 32 2,078 29 1,897
Amortization 13 862 15 950
Impairment - - 1 67
EBITDA 105 6,888 98 6,420
EBITDA (% to sales) 19.4 17.9
* – Includes income from Investments
Key Balance Sheet Items
Particulars As on 30th Sep 17 As on 30th June 17
($)
(Rs.) ($) (Rs.)
Cash and cash equivalents and Other current Investments 257 16,793 223 14,572
Trade receivables 646 42,203 630 41,140
Inventories 413 26,998 430 28,095
Property, plant and equipment 887 57,905 882 57,611
Goodwill and Other Intangible assets 760 49,634 744 48,564
Loans and borrowings (current & non-current) 822 53,668 773 50,462
Trade payables 217 14,193 203 13,225
Equity 1,866 1,21,840 1,890 1,23,423
Revenue Mix by Segment [Year on year]
Particulars Q2 FY 18 Q2 FY 17 Growth %
($) (Rs.) % ($) (Rs.) %
Global Generics 438 28,618 81 % 444 28,995 81 % -1
North America 14,318 16,134 -11
Europe* 2,424 1,776 36
India 6,370 6,251 2
Emerging Markets# 5,506 4,834 14
PSAI 87 5,654 16 % 89 5,784 16 % -2
North America 962 1,135 -15
Europe 1,938 2,095 -7
India 436 575 -24
Rest of World 2,318 1,979 17
Proprietary Products & Others 18 1,188 3 % 17 1,078 3 % 10
Total 543 35,460 100 % 549 35,857 100 % -1
Revenue Mix by Segment [Sequential]
Particulars Q2 FY 18 Q1 FY 18 Growth %
($) (Rs.) % ($) (Rs.) %
Global Generics 438 28,618 81 420 27,455 83 % 4
North America 14,318 14,946 -4
Europe* 2,424 2,075 17
India 6,370 4,687 36
Emerging Markets# 5,506 5,747 -4
PSAI 87 5,654 16 71 4,651 14 % 22
North America 962 779 23
Europe 1,938 1,863 4
India 436 288 51
Rest of World 2,318 1,721 35
Proprietary Products & Others 18 1,188 3 16 1,053 3 % 13
Total 543 35,460 100 % 508 33,159 100 % 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. 28.6 billion, year-on-year marginal decline of 1%; decline primarily on account of lower contribution from North America offset by increased contribution from Europe, India and Emerging Markets.
Revenues from North America at Rs. 14.3 billion. Year-on-year decline of 11%, primarily on account of higher price erosions due to channel consolidation and increased competition in some of our key products namely Valgancyclovir, Azacitidine, Esomeprazole, etc.
During the quarter we launched 4 new products i.e. Sevelamer Carbonate, Cefixime OS, Bupropion XL and Metaxalone tabs. Since Sevelamer carbonate was launched post the cut-off date for revenue recognition, no sales have been recorded during the quarter.
As of 30th September 2017, cumulatively 103 generic filings are pending for approval with the USFDA (100 ANDAs and 3 NDAs under 505(b)(2) route). Of these 100 ANDAs, 60 are Para IVs out of which we believe 28 have ‘First to File’ status.
Revenues from Emerging Markets at Rs. 5.5 billion, year-on-year growth of 14%.
Revenues from Russia at Rs. 3.2 billion, year-on-year growth of 20%. In constant currency i.e. in Ruble terms year-on-year growth of 13%. Growth driven by higher volume uptake in base business and new products.
Revenues from other CIS countries and Romania market at Rs. 0.9 billion, year-on-year growth of 3%.
Revenues from Rest of World (RoW) territories at Rs. 1.4 billion, year-on-year growth of 9%.
Revenues from India at Rs. 6.4 billion, year-on-year growth of 2%. Partial recovery was witnessed in the inventory holding by the channel post the transition to the GST regime. Pre-GST transition, the reported numbers included the excise duty component with a corresponding charge in the income statement. Post the transition, revenues reported are lower to the extent of the ED component, though it’s a profit neutral adjustment. Normalizing for this and some other transition related adjustments, the comparable year-on-year growth would be around 10%.
Revenues from Europe at Rs. 2.4 billion, year-on-year growth of 37%. Growth primarily driven by new launches and volume uptake in some of the key products.
Pharmaceutical Services and Active Ingredients (PSAI)
Revenues from PSAI at Rs. 5.7 billion, year-on-year decline of 2%. On a sequential basis revenues registered a growth of 22% aided by improved order flow and supply situations.
During the quarter, 16 DMFs were filed globally of which 2 were in the US. The cumulative number of DMF filings as of 30th September, 2017 was 780.
Income Statement Highlights:
Gross profit margin at 53.3% and declined by ~270 bps over that of previous year, decline primarily on account of higher price erosions due to channel consolidation and increased competitive intensity in some of our key molecules in the US. Gross profit margin for GG and PSAI business segments are at 59.2% and 19.6% respectively.
Gross profit margins improved 170 bps sequentially, aided by favorable manufacturing overheads leverage (higher revenues and lower overheads).
SG&A expenses at Rs. 11.0 billion, a decrease of 6% both year-on-year and sequentially. In Q2 FY17 the company had accrued a potential liability of Rs. 344 million towards NPPA provision. After adjusting the base, the marginal decline is primarily on account of prudent control on spend.
Research & development expenses at Rs. 4.2 billion. As % to Revenues- Q2 FY18: 11.8% | Q1 FY 18: 15.3% | Q2 FY17: 14.5%]. Compared to the trend, spend is lower partially on account of deferment in some of the milestone related payments to subsequent quarters. Focus continues on building complex generics, biosimilars and differentiated products pipeline.
Net Finance expense at Rs. 24 million compared to the net finance income of Rs. 365 million in Q2FY17. The incremental expense of Rs. 389 million is on account of:
Net foreign exchange gain of Rs. 47 million in the current quarter vs net foreign exchange gain of Rs. 37 million in the previous year.
Decrease in profit on sales of investments by Rs. 289 million.
Net increase in interest expense of Rs. 110 million.
Profit after Tax at Rs. 2.8 billion.
Diluted earnings per share is at Rs. 17.15.
Capital expenditure is at Rs. 2.8 billion.
Earnings Call Details (06:30 pm IST, 09:00 am EDT, October 31, 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
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.