Dr. Reddy’s Q4 and FY17 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, 2017 under International Financial Reporting Standards (IFRS).

FY17: Key Highlights

  • Revenues at Rs. 140.8 billion: YoY decline: 9%
  • Gross Profit Margin at 55.6%
  • Research & Development (R&D) spend at Rs. 19.6 billion [13.9% of Revenues]
  • Selling, general & administrative (SG&A) expenses at Rs. 46.4 billion [YoY increase: 1%]
  • EBITDA at Rs. 25.5 billion [18.1% of Revenues]
  • Profit after tax at Rs. 12.0 billion [8.5% of Revenues]

Q4 FY17: Key Highlights

  • Revenues at Rs. 35.5 billion: QoQ decline: 4%; YoY decline: 5%
  • Gross Profit Margin at 51.2%
  • R&D spend at Rs. 4.6 billion [12.9% of Revenues]
  • SG&A expenses at Rs. 11.0 billion [YoY decline: 6%]
  • EBITDA at Rs. 6.3 billion [17.7% of Revenues]
  • Profit after tax at Rs. 3.1 billion [8.8% of Revenues]

Commenting on the results, Co-chairman and CEO, G V Prasad said, “FY17 has been a challenging year due to lack of new product approvals for the US market. However, our other geographies delivered good performances, with several new product launches. We are also seeing expanded global access to our Biosimilars, as a result of successful registrations in Emerging Markets. We will continue our focus on rationalisation of cost structures and building a sustainable quality culture across the organisation.”

All amounts in millions, except EPS
All US dollar amounts based on convenience translation rate of I USD = Rs. 64.85

Dr. Reddy’s Laboratories Limited and Subsidiaries

Consolidated Income Statement for Q4 FY 17

Q4 FY17Q4 FY16
Particulars($)(Rs.) % ($)(Rs.) % Growth %
Revenues54835,542100.057937,562100.0(5)
Cost of revenues 268 17,360 48.8 251 16,286 43.4 7
Gross profit28018,18251.232821,27656.6(15)
Operating Expenses
Selling, general & administrative expenses 169 10,973 30.9 179 11,632 31.0 (6 )
Research and development expenses 71 4,579 12.9 75 4,879 13.0 (6 )
Other operating (income) / expense (8 ) (505 ) (1.4 ) (5 ) (307 ) (0.8 ) 64
Results from operating activities483,1358.8785,07213.5(38)
Net finance expense 1 48 0.1 41 2,646 7.0 (98 )
Share of (profit) / loss of equity accounted investees (2 ) (102 ) (0.3 ) (1 ) (59 ) (0.2 ) 72
Profit before income tax493,1899.0382,4856.628
Income tax expense 1 64 0.2 27 1,739 4.6 (96 )
Profit for the period483,1258.8117462.0319
--
Diluted EPS0.2918.830.074.36332

EBITDA Computation

ParticularsQ4 FY 17Q4 FY 16
$Rs.$Rs.
Profit before income tax493,189382,485
Interest income, net* (1 ) (90 ) (11 ) (713 )
Depreciation# 36 2,338 32 2,062
Amortization 13 866 15 970
EBITDA976,303744,804
EBITDA% to Revenues17.7%12.8%

* Includes income from Investments; # Includes Impairment charge

Key Balance Sheet Items

ParticularsAs on 31st Mar 17As on 31st Dec 16
($)(Rs.)($)(Rs.)
Cash and cash equivalents and Other current Investments 280 18,136 311 20,145
Trade Receivables 587 38,065 634 41,119
Inventories 440 28,529 463 30,052
Property, plant and equipment 881 57,160 882 57,209
Goodwill and Other Intangible assets 751 48,677 771 49,977
Loans and borrowings (current & non-current) 758 49,185 894 57,999
Trade & other payables 207 13,417 205 13,308
Equity 1,913 1,24,044 1,866 121,040

Dr. Reddy’s Laboratories Limited and Subsidiaries

Consolidated Income Statement for FY 17

FY17FY16
Particulars($)(Rs.) % ($)(Rs.) % Growth %
Revenues2,1711,40,809100.02,3861,54,708100.0(9)
Cost of revenues 963 62,453 44.4 963 62,427 40.4 0
Gross profit1,20878,35655.61,42392,28159.6(15)
Operating Expenses
Selling, general & administrative expenses 715 46,372 32.9 705 45,702 29.5 1
Research and development expenses 301 19,551 13.9 275 17,834 11.5 10
Other operating (income) / expense (16 ) (1,065 ) (0.8 ) (13 ) (874 ) (0.6 ) 22
Results from operating activities20813,4989.645729,61919.1(54)
Net finance (income) / expense (12 ) (806 ) (0.6 ) 42 2,708 1.8 (130 )
Share of (profit) / loss of equity accounted investees (5 ) (349 ) (0.2 ) (4 ) (229 ) (0.1 ) 52
Profit / (loss) before income tax22614,65310.441827,14017.5(46)
Income tax (benefit) / expense 40 2,614 1.9 110 7,127 4.6 (63 )
Profit / (loss) for the period18612,0398.530920,01312.9(40)
-
Diluted EPS1.1172.091.80116.98(38)

EBITDA Computation

ParticularsFY 17FY 16
$Rs.$Rs.
Profit before income tax22614,65341827,140
Interest income, net* (14 ) (880 ) (22 ) (1,425 )
Depreciation# 122 7,931 106 6,874
Amortization# 59 3,791 56 3,663
EBITDA39325,49555936,252
EBITDA% to Revenues18.1%23.4%

* Includes income from Investments; # Includes Impairment charge

Key Balance Sheet Items

ParticularsAs on 31st Mar 17As on 31st Mar 16
($)(Rs.)($)(Rs.)
Cash and cash equivalents and Other current Investments 280 18,136 616 39,955
Trade Receivables 587 38,065 637 41,306
Inventories 440 28,529 394 25,578
Property, plant and equipment 881 57,160 832 53,961
Goodwill and Other Intangible assets 751 48,677 380 24,644
Loans and borrowings (current & non-current) 758 49,185 517 33,513
Trade & other payables 207 13,417 190 12,300
Equity 1,913 1,24,044 1,979 1,28,336

Revenue Mix by Segment [FY 17 vs FY 16]

ParticularsFY 17FY 16Growth %
($)(Rs.)%($)(Rs.)%
Global Generics1,7801,15,409821,9751,28,06283(10)
North America 63,601 75,445 (16 )
Europe* 7,606 7,732 (2 )
India 23,131 21,293 9
Emerging Markets# 21,071 23,592 (11 )
PSAI32821,2771534522,37914(5)
North America 3,569 3,052 17
Europe 8,410 9,313 (10 )
India 1,750 2,618 (33 )
Rest of World 7,548 7,396 2
Proprietary Products & Others644,1233664,2673(3)
Total2,1711,40,8091002,3861,54,708100(9)

Revenue Mix by Segment [Q4 FY 17 vs Q3 FY 17]

ParticularsQ4 FY 17Q3 FY 17Growth %
($)(Rs.) % ($)(Rs.) %
Global Generics44929,1388247230,63883(5)
North America 15,349 16,595 (8 )
Europe* 2,066 2,148 (4 )
India 5,711 5,947 (4 )
Emerging Markets# 6,012 5,948 1
PSAI835,40115835,40014-
North America 532 1,259 (58 )
Europe 2,539 1,828 39
India 395 409 (3 )
Rest of World 1,935 1,904 2
Proprietary Products & Others151,0033161,0273(2)
Total54835,54210057237,065100(4)

Revenue Mix by Segment [Q4 FY 17 vs Q4 FY 16]

ParticularsQ4 FY17Q4 FY16Growth %
($)(Rs.)%($)(Rs.)%
Global Generics44929,1388247530,77482(5)
North America 15,349 18,950 (19 )
Europe* 2,066 1,759 17
India 5,711 5,267 8
Emerging Markets# 6,012 4,798 25
PSAI835,40115895,76615(6)
North America 532 742 (28 )
Europe 2,539 2,586 (2 )
India 395 603 (35 )
Rest of World 1,935 1,835 5

Proprietary Products & Others

151,0033161,0223(2)
Total54835,54210057937,562100(5)

* 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 for FY 17 at Rs. 115.4 billion, year-on-year decline of 10%; primarily on account of lower contribution from North America and Emerging Markets. Revenues for fourth quarter declined by 5% on a year-on-year basis.

  • Revenues from North America for FY 17 at Rs. 63.6 billion, year-on-year decline of 16%. This is primarily on account of increased competition in our key products namely valganciclovir, decitabine, azacitidine etc. coupled with discontinuation of the McNeil business. Revenues for fourth quarter at Rs. 15.3 billion.

    During the year, we filed 26 ANDAs with USFDA. Of these 13 ANDAs filed in the fourth quarter.

    As of 31st March, 2017, cumulatively 101 generic filings are pending for approval with the USFDA (99 ANDAs and 2 NDAs under 505(b)(2) route). Of these 99 ANDAs, 62 are Para IVs out of which we believe 21 have ‘First to File’ status.
  • Revenues from Emerging Markets for FY 17 at Rs. 21.1 billion, year-on-year decline of 11%, primarily on account of constrained operations in Venezuela. Revenues for fourth quarter at Rs. 6 billion. Gradual sequential improvement through the year is backed by improving macro economic environment across geographies coupled with focused foray into the institutional business in some countries.
    • Revenues from Russia for FY 17 at Rs. 11.5 billion, year-on-year growth of 9%. In constant currency it has grown by 8%. Revenues the fourth quarter at Rs. 3.4 billion and grew 26% year-on-year in constant currency.
    • Revenues from other CIS countries and Romania for FY 17 at Rs. 3.7 billion, year-on-year growth of 4%.
    • Revenues from Rest of World (RoW) territories for FY 17 at Rs. 5.8 billion, year-on-year decline of 38%. This is primarily on account of constrained operations in Venezuela.
  • Revenues from India at Rs. 23.1 billion, year-on-year growth of 9%. Revenues for fourth quarter at Rs. 5.7 billion and grew 8% year-on-year.
  • Revenues from Europe at Rs. 7.6 billion, year-on-year decline of 2%, impacted due to weak GBP.

Pharmaceutical Services and Active Ingredients (PSAI)

  • Revenues from PSAI at Rs. 21.3 billion, year-on-year decline of 5%. Revenues for fourth quarter at Rs. 5.4 billion declined by 6%.
  • During the year, 82 DMFs were filed globally of which 9 were in the US. Cumulative number of DMF filings as of 31st March, 2017 was 754.

Proprietary Products (PP)

Zembrace™Sym Touch ™(Suma 3 mg) injection and Sernivo™ (betamethasone dipropionate) Spray, 0.05% are gradually gaining traction, with an improvement in the sales volumes.

Income Statement Highlights:

  • Gross profit margin for FY 17 is at 55.6% and declined ~400 bps over that of previous year. This decline is primarily on account of high price erosion in our North America Generics Business, impairment charge taken at our Bristol plant, provision towards new product inventory and higher manufacturing overheads. Gross profit margin for GG and PSAI business segments are at 61.6% and 21.0% respectively. Gross profit margin for the fourth quarter at 51.2%.
  • SG&A expenses for FY 17 at Rs. 46.4 billion. Marginal increase of 1%. SG&A expenses for fourth quarter at Rs. 11 billion.
  • R&D expenses for FY 17 at Rs. 19.6 billion, 13.9% of Revenues, against 11.5% in FY 16. R&D expense for the fourth quarter at Rs. 4.6 billion, 12.9% of Revenues. Focus continues to build a sustainable revenue stream through a mix of simple and complex generics, biosimilars and differentiated products pipeline.
  • Net finance income for FY 17 is Rs. 806 million compared to net finance expense of Rs. 2,708 million in FY 16. This is on account of:
    • Net foreign exchange loss of Rs. 74 million in the current year vs net foreign exchange loss of Rs. 4,133 million in the previous year primarily related to the Venezuela adjustment.
    • Increase in profit on sales of investments by Rs. 105 million; offset by
    • Net decrease in interest income of Rs. 650 million.
  • Profit after Tax for FY 17 at Rs. 12.0 billion. PAT for fourth quarter at Rs. 3.1 billion.
  • Diluted earnings per share for FY 17 is at Rs. 72.1 and Rs. 18.8 for fourth quarter.
  • Capital expenditure for FY 17 is at Rs. 11.7 billion and Rs. 2.4 billion for fourth quarter.

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, 2017 subject to approval of members

Earnings Call Details (06:00 pm IST, 08:30 am EDT, May 12, 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

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.

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
Ph: +91-40-4900 2135
saunaks@drreddys.com
or
MEDIA RELATIONS
CALVIN PRINTER
Ph: +91-40-4900 2121
calvinprinter@drreddys.com

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