On January 25, 2018 Dr. Reddy’s Laboratories Ltd. (BSE: 500124 | NSE: DRREDDY | NYSE: RDY) reported its consolidated financial results for the third quarter and nine months ended December 31, 2017 under International Financial Reporting Standards (IFRS) (Press release, Dr Reddy’s, JAN 25, 2018, View Source [SID1234523576]).
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Q3 Performance Summary 9M Performance Summary
Rs. 3,806 Cr Rs. 10,668 Cr
Revenue Revenue
[Up: 7% QoQ, Up: 3% YoY] [Up: 1% YoY]
56.3% 53.8%
Gross Margin Gross Margin
[Q2 FY18: 53.3%; Q3 FY17: 59.1%]
[9M FY17: 57.2%]
Rs. 1,205 Cr Rs. 3,484 Cr
SGNA expenses SGNA expenses
[Up: 6% YoY] [Down: 2% YoY]
Rs. 467 Cr Rs. 1,392 Cr
R&D expenses R&D expenses
[12.3% of Revenues] [13.0% of Revenues]
Rs. 806 Cr Rs. 1,830 Cr
EBITDA EBITDA
[21.2% of Revenues] [17.2% of Revenues]
Rs. 334 Cr* Rs. 678 Cr*
Profit after Tax Profit after Tax
[8.8% of Revenues] [6.4% of Revenues]
* 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".
All amounts in millions, except EPS All US dollar amounts based on convenience translation rate of I USD = Rs. 63.83
Dr. Reddy’s Laboratories Limited and Subsidiaries
Consolidated Income Statement
Q3 FY 18 Q3 FY 17 Growth
Particulars ($) (Rs.) % ($) (Rs.) % %
Revenues 596 38,060 100.0 581 37,065 100.0 3
Cost of revenues 261 16,649 43.7 238 15,166 40.9 10
Gross profit 335 21,411 56.3 343 21,899 59.1 (2 )
Operating Expenses
Selling, general & administrative expenses 189 12,048 31.7 178 11,341 30.6 6
Research and development expenses 73 4,667 12.3 78 4,956 13.4 (6 )
Other operating expense / (income) (5 ) (313 ) (0.8 ) (3 ) (187 ) (0.5 ) 67
Results from operating activities 78 5,009 13.2 91 5,789 15.6 (13 )
Finance expense / (income), net (13 ) (851 ) (2.2 ) (1 ) (44 ) (0.1 ) 1850
Share of (profit) of equity accounted investees, net of income tax (1 ) (85 ) (0.2 ) (1 ) (89 ) (0.2 ) (5 )
Profit before income tax 93 5,945 15.6 93 5,922 16.0 0
Income tax expense 41 2,601 * 6.8 19 1,221 3.3 113
Profit for the period 52 3,344 8.8 74 4,701 12.7 (29 )
Diluted EPS 0.32 20.13 0.44 28.32 (29 )
* ~Rs. 930 million impact on account of reforms in US tax laws
EBITDA Computation
Q3 FY 18 Q3 FY 17
Particulars ($) (Rs.) ($) (Rs.)
Profit before income tax 93 5,945 93 5,922
Interest (income) / expense net* (14 ) (881 ) (1 ) (53 )
Depreciation 33 2,089 30 1,936
Amortization 14 882 15 956
Impairment 0.3 20 0.5 32
EBITDA 126 8,055 138 8,793
EBITDA (% to revenues) 21.2 23.7
* – Includes income from Investments
Key Balance Sheet Items
As on 31st Dec 17 As on 30th Sep 17
Particulars ($) (Rs.) ($) (Rs.)
Cash and cash equivalents and Other current Investments 344 21,958 263 16,793
Trade receivables (current) 665 42,432 661 42,203
Inventories 420 26,825 423 26,998
Property, plant and equipment 912 58,189 907 57,905
Goodwill and Other Intangible assets 755 48,182 778 49,634
Loans and borrowings (current & non-current) 860 54,911 841 53,668
Trade payables 228 14,575 222 14,193
Equity 1,938 1,23,685 1,909 1,21,840
All amounts in millions, except EPS All US dollar amounts based on convenience translation rate of I USD = Rs. 63.83
Revenue Mix by Segment [Year on year]
Q3 FY 18 Q3 FY 17 Growth
Particulars ($) (Rs.) % ($) (Rs.) % %
Global Generics 472 30,105 79 480 30,638 83 -2
North America 16,073 16,595 -3
Europe* 2,006 2,148 -7
India 6,126 5,947 3
Emerging Markets# 5,900 5,948 -1
PSAI 85 5,436 14 85 5,400 14 1
North America 863 1,259 -31
Europe 1,572 1,828 -14
India 627 409 53
Rest of World 2,374 1,904 25
Proprietary Products & Others 39 2,519 7 16 1,027 3 145
Total 596 38,060 100 581 37,065 100 3
Revenue Mix by Segment [Sequential]
Q3 FY 18 Q2 FY 18 Growth
Particulars ($) (Rs.) % ($) (Rs.) % %
Global Generics 472 30,105 79 448 28,618 81 5
North America 16,073 14,318 12
Europe* 2,006 2,424 -17
India 6,126 6,370 -4
Emerging Markets# 5,900 5,506 7
PSAI 85 5,436 14 89 5,654 16 -4
North America 863 962 -10
Europe 1,572 1,938 -19
India 627 436 44
Rest of World 2,374 2,318 2
Proprietary Products & Others 39 2,519 7 19 1,188 3 112
Total 596 38,060 100 556 35,460 100 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. 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 outlicensing 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 Q3FY17. 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.
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.