Dr. Reddy’s Laboratories Ltd. (BSE: 500124 | NSE: DRREDDY | NYSE: RDY) today announced its consolidated financial results for the quarter and half year ended September 30, 2018 under International Financial Reporting Standards (IFRS).

Commenting on the results, Co-chairman and CEO, G.V. Prasad said, “I am encouraged with our performance and progress in the second quarter. Our continuous focus on execution, operational efficiency and cost optimization are showing results. Looking ahead, our priority will be to resolve pending regulatory issues, and continue to work on execution and cost structures that will enable affordable medicines for more patients.”

Segmental Analysis

Global Generics (GG)

Revenues from GG segment at Rs.30.5 billion. Year-on-year growth of 7%, primarily driven by contributions from Emerging Markets, India and favorable forex. Quarter-on-quarter the sales remained flat.

• Revenues from North America at Rs.14.3 billion. Year-on-year decline is 0.4%. Sequential decline of 10%, primarily due to absence of gSuboxone sales in Q2, competitive pricing pressure on some of the key molecules offset by favourable forex benefit.
  
  As of 30th Sep 2018, cumulatively 113 generic filings are pending for approval with the USFDA (110 ANDAs and 3 NDAs under 505(b)(2) route). Of these 110 ANDAs, 63 are Para IVs out of which we believe 32 have ‘First to File’ status.

• Revenues from Emerging Markets at Rs.7.5 billion. Year-on-year growth is 36%. Sequential growth is 13%. Growth is primarily on account of improved volume offtake in our existing markets and scale up in our new markets.

• Revenues from Russia at Rs.3.8 billion. Year-on-year growth of 18%. Growth primarily driven by new launches and improved volume offtake in some of the key molecules marginally offset by unfavourable forex.
• Revenues from other CIS countries and Romania market at Rs.1.4 billion. Year-on-year growth of 56%.
• Revenues from Rest of World (RoW) territories at Rs.2.3 billion. Year-on-year growth of 65%, primarily driven by new markets and volume traction in base business.

• Revenues from India at Rs.6.9 billion. Year-on-year growth of 8%. Growth was primarily driven by new products and improvement in base business.

• Revenues from Europe at Rs.1.9 billion. Year-on-year decline of 21%, primarily on account of higher price erosion in some of the key molecules.

Pharmaceutical Services and Active Ingredients (PSAI)

• Revenues from PSAI at Rs.6.0 billion. Year-on-year growth of 7% and sequential growth of 11%, growth driven by volume traction in some of our key molecules.

Proprietary Products (PP)

• Revenues from PP at Rs.776 million. Year-on-year growth of 4% and sequential growth of 7%.

Income Statement Highlights:

• Gross profit margin at 55.0%.

• Improved by ~170 bps over that of previous year and declined by ~70 bps sequentially.
• Sequential decline attributable to the contribution from gSuboxone sales in Q1FY19. Ex-Suboxone marginal improvement in margin led by higher contribution from branded generics markets, favorable forex partially offset by price erosion in some of our key molecules.
• Year-on-year improvement primarily aided by contribution from new launches, improved leverage, better product mix coupled with favorable foreign exchange. This was partially offset by higher price erosions due to increased competitive intensity in some of our key molecules in the US.
• Gross profit margin for GG and PSAI business segments are at 59.3% and 28.1% respectively.

• SG&A expenses at Rs.12.4 billion, increase of 12% on a year-on-year basis and 2% sequentially. Adjusted for the forex related increase, the balance increase is primarily on account of normal salary increments and increased spend towards promotion and branding activities.
• R&D expenses at Rs.4.1 billion. As % to Revenues- Q2 FY19: 10.8% | Q1 FY 19: 11.2% | Q2 FY18: 11.8%

• Other income includes gain of Rs.464 million on account of sale of rights relating to Cloderm brand (including its authorized generic) and profit on sale of antibiotic manufacturing facility in Bristol, US.
• Net Finance income at Rs.625 million compared to net finance expense of Rs.2 million in Q2FY18.
• Profit after Tax at Rs.5.0 billion. Effective tax rate for the quarter is 12.8%. Lower rate is primarily on account of profit mix and favourable resolutions of certain tax related litigations pertaining to earlier years.
• Diluted earnings per share is at Rs.30.31.
• Capital expenditure is at Rs.1.4 billion.

Earnings Call Details (06:00 pm IST, 08:30 am EDT, October 26, 2018)

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 gastrointestinal, cardiovascular, diabetology, oncology, pain management and dermatology. Dr. Reddy’s operates in markets across the globe. Our major markets include – USA, India, Russia & CIS countries, and Europe. 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.

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