Dr. Reddy's Q2 FY10 Results

October 23, 2009 5:47 AM EDT

Revenues at Rs. 18,368 million, up by 14%

EBITDA at Rs. 3,797 million, up by 51%

PAT at Rs. 2,173 million, up by 106%

HYDERABAD, India--(BUSINESS WIRE)-- Dr. Reddy's Laboratories Ltd. (NYSE: RDY) today announced its unaudited financial results for the second quarter ended September 30, 2009 under International Financial Reporting Standards (IFRS).

Key Highlights

    --  Consolidated revenues at Rs. 18.4 billion ($382 million) in Q2 FY10 as
        against Rs. 16.2 billion ($336 million) in Q2 FY09, representing a
        growth of 14%. The growth is largely driven by Global Generics.
        o Consolidated revenues for H1 FY10 at Rs. 36.6 billion represent a YoY
          growth of 17%.
        o Sequentially, as compared to Q1 FY10, the revenues excluding
          sumatriptan have grown by 11%.
    --  Operating income at Rs. 2.6 billion ($53 million) in Q2 FY10 as against
        Rs. 1.8 billion ($37 million) in Q2 FY09.
    --  EBITDA at Rs. 3.8 billion ($79 million) in Q2 FY10 as against Rs. 2.5
        billion ($52 million) in Q2 FY09, representing a growth of 51%.
        o EBITDA for H1 FY10 at Rs. 8.2 billion represents a YoY growth of 70%.
    --  Revenues from Global Generics business at Rs. 12.7 billion ($264
        million)in Q2 FY10 as against Rs. 11.1 billion ($231 million) in Q2
        FY09. YoY growth of 14% driven by key markets of North America, Russia
        and India.
        o Revenues for H1 FY10 at Rs. 25.7 billion represent a YoY growth of
          20%.
    --  Revenues from Pharmaceutical Services & Active Ingredients (PSAI)
        increase by 11% to Rs. 5.4 billion ($112 million) in Q2 FY10 as against
        Rs. 4.8 billion ($100 million) in Q2 FY09.
        o Revenues for H1 FY10 at Rs. 10.2 billion represent a YoY growth of 9%.
    --  During the quarter, the company launched 39 new generic products, filed
        24 new product registrations and filed 5 DMFs globally.

All figures in millions,       All dollar figures based on convenience
except EPS                     translation rate of 1USD = Rs 48.09

Dr. Reddy's Laboratories Limited and Subsidiaries

Unaudited Condensed Consolidated Income Statement

                               Q2 FY10            Q2 FY09

Particulars                    ($)   (Rs.)   %    ($)  (Rs.)   %    Growth %

Revenue             A          382   18,368  100  336  16,151  100  14

Cost of revenues    B          201   9,649   53   170  8,187   51   18

Gross profit        C = A-B    181   8,719   47   166  7,964   49   9

Operating Expenses

Selling, general &
administrative      D          111   5,336   29   110  5,286   33   1
expenses(a)

Research and
development         E          20    963     5    17   825     5    17
expenses, net

Other
(income)/expenses,  F          (3)   (125)   (1)  2    88      1
net

Total Operating     G = D+E+F  128   6,174   34   129  6,199   38   (0)
Expenses

Results from
operating           H = C - G  53    2,545   14   37   1,765   11   44
activities

Finance income (b)  I          (6)   (293)   (2)  (2)  (92)    (1)  218

Finance expenses    J          2     85      0    12   574     4    (85)
(c)

Finance expenses,   K = I+J    (4)   (208)   (1)  10   482     3
net

Share of profit/
(loss) of equity    L          0     15      0    0    2       0
accounted
investees

Profit before       M = H-K+L  58    2,768   15   27   1,285   8    115
income tax

Income tax expense  N          (12)  (595)   (3)  (5)  (232)   (1)  156

Profit for the      O = M+N    45    2,173   12   22   1,052   7    106
period

Attributable to :

Equity holders of   P          45    2,173   12   22   1,052   7    106
the company

Minority interest   Q          0     0       0    0    0       0

Profit for the      R = P + Q  45    2,173   12   22   1,052   7    106
period

Diluted EPS                    0.3   12.8         0.1  6.2

Notes:

(a) Includes amortization charges of Rs. 329 million in Q2 FY10 and Rs. 472 million in Q2 FY09.

(b) Includes forex gain of Rs. 244 million in Q2 FY10.

(c) Includes forex loss of Rs. 296 million in Q2 FY09.

Key Balance Sheet Items                       (in millions)

                                              As on 30thSep 09  As on 30thJun 09
Particulars
                                              ($)  (Rs.)        ($)  (Rs.)

Cash and cash equivalents                     128  6,149        129  6,184

Trade and other receivables                   274  13,155       278  13,374

Inventories                                   273  13,136       290  13,933

Property, plant and equipment                 442  21,278       436  20,970

Goodwill and Other Intangible assets          459  22,057       453  21,768

Loans and borrowings (current & non current)  305  14,668       335  16,109

Trade accounts payable                        150  7,198        143  6,873

Equity (including reserves)                   949  45,649       932  44,832

Segmental Analysis

Global Generics

    --  Revenues from Global Generics business at Rs. 12.7 billion ($264
        million) in Q2 FY10 as against Rs. 11.1 billion ($231 million) in Q2
        FY09. YoY growth of 14% driven by key markets of North America, Russia
        and India.
        o Revenues from North America at Rs. 4.3 billion ($89 million) in Q2
          FY10 as against Rs. 3.1 billion ($65 million) in Q2 FY09. The YoY
          growth of 36% continues to be driven by high volume growth across
          existing products and new product launches in the last 12 months.
        o The total cumulative ANDA filings are 141. 62 ANDAs are pending
          approval at the USFDA of which 27 are Para IVs and 16 are FTFs.
    --  Revenues from Europe at Rs. 2.8 billion ($59 million) in Q2 FY10 as
        against Rs. 3.3 billion ($68 million) in Q2 FY09, representing a fall of
        13%.
        o Revenues from Germany decrease by 21% to Rs. 2.2 billion ($46 million)
          in Q2 FY10 from Rs. 2.8 billion ($58 million) in Q2 FY09. This
          decrease is on account of the lower sales due to the AOK tender and
          the pricing pressure in the market.
          # The sequential growth of 37% in Q2 FY10 is due to one-time seasonal
            vaccine sales.
          # Pursuant to the ongoing reforms in the German generics
            pharmaceutical market, further tenders were announced by several of
            the public health insurance companies during the period. The Company
            has participated / intends to participate in these tenders through
            its wholly owned subsidiary betapharm. The final results of a
            majority of these tenders are yet to be announced. The results of
            these tenders may impact betapharm's business.
        o Revenues from Rest of Europe grew by 29% to Rs. 654 million ($14
          million) in Q2 FY10. The growth is largely contributed by UK with
          sales of Rs. 436 million ($9 million) representing a growth of 20%.
    --  Revenues from Russia & Other CIS markets at Rs. 2.3 billion ($49
        million) in Q2 FY10 as against Rs. 1.9 billion ($39 million) in Q2 FY09,
        representing a growth of 26%.
        o Revenues in Russia at Rs. 1.8 billion ($38 million) in Q2 FY10 as
          against Rs. 1.3 billion ($28 million) in Q2 FY09 representing a YoY
          growth of 39%.
          # The secondary prescription sales trend as per Pharmexpert for the
            five months of April to August compared to same period last year
            indicates a de-growth of 6% in dollar value for the industry as
            against Dr. Reddy's growth of 7% in dollar value terms.
        o Revenues in Other CIS markets fall by 4% to Rs. 502 million ($10
          million) in Q2 FY10 as against Rs. 525 million ($11 million) in Q2
          FY09.

    --  Revenues in India at Rs. 2.5 billion ($52 million) in Q2 FY10 from Rs.
        2.2 billion ($47 million), representing a growth of 13% led by key
        brands of Omez, Omez-DSR and Razo.
        o Sequential growth of 5% over Q1 FY10 is led by volume growth.
        o The secondary sales trend as per ORG IMS for the five months April to
          August indicates a growth of 17% for Dr. Reddy's as against an
          industry growth of 14% and the Top 10 Companies growth of 16%.
        o 17 new products launched during the quarter.

Pharmaceutical Services and Active Ingredients

    --  Revenues from Pharmaceutical Services & Active Ingredients (PSAI) at Rs.
        5.4 billion ($112 million) in Q2 FY10 as against Rs. 4.8 billion ($100
        million) in Q2 FY09 ; YoY growth of 11% driven by the regions of Europe
        and the benefit of rupee depreciation against the dollar.
        o During the quarter, 5 DMFs were filed globally, with 2 in US, 2 in
          Europe and 1 in RoW. The cumulative DMF filings as of Sep 09 are 361.

Income Statement Highlights:

    --  Gross profit at Rs. 8.7 billion ($181 million) in Q2 FY10 represents a
        margin of 47% to revenues as against 49% in Q2 FY09. The current quarter
        margins have been impacted by one-time inventory provisions of EUR6
        million in betapharm on account of non-moving stocks and $4 million in
        the US for inventory valuation adjustments of sumatriptan stocks lying
        with the company. Excluding these non-recurring items, the adjusted
        margins are at 51%.
    --  Selling, General & Administration (SG&A) expenses including amortization
        for the quarter are at $111 million, remained flat as compared to
        previous year. This expense includes the benefit of decrease in
        amortization charge due to the impairment of betapharm intangibles
        recorded in March 2009.
    --  Other operating income of Rs. 125 million in Q2 FY10 as against Other
        operating expenses of Rs. 88 million in Q2 FY09. The movement is largely
        on account of the fact that in Q2 FY09, a provision for damages of Rs.
        230 million was recorded on account of the German court upholding the
        validity of the olanzapine patent of the innovator in Germany.
    --  R&D expenses at Rs. 963 million in Q2 FY10 represent 5% of revenues.
    --  Finance income (net) are at Rs. 208 million in Q2 FY10 as against
        Finance costs (net) at Rs. 482 million in Q2 FY09. The change is mainly
        on account of :
        o Net forex gain of Rs. 244 million in Q2 FY10 as against net forex loss
          of Rs. 296 million in Q2 FY09.
        o Net interest expense of Rs. 42 million in Q2 FY10 as against Rs. 228
          million in Q2 FY09.
    --  PAT at Rs. 2.2 billion ($45 million) in Q2 FY10 as against Rs. 1.1
        billion ($22 million), representing a growth of 106%.
    --  PAT adjusted for exceptions in the previous year, represented a growth
        of 79%.
    --  EPS of Rs. 12.8 ($0.3) in Q2 FY10 as against Rs. 6.2 ($0.1) in Q2 FY09.
    --  Capital expenditure for H1 FY10 is at Rs. 1.4 billion ($30 million).

General Information

The company today announced that the board of directors has appointed Dr. Ashok Ganguly as an additional director on the board of Dr. Reddy's Laboratories Ltd.

Dr. Ashok Ganguly is the Chairman of Firstsource Solutions Ltd. (formerly ICICI OneSource Ltd) and ABP Pvt. Ltd. (Ananda Bazar Patrika Group), and has been a Director on the Central Board of the Reserve Bank of India since November 2000. He also serves as a non-executive director of Mahindra & Mahindra, Wipro Ltd., Tata AIG Life Insurance Co Ltd., and a Director on the Advisory Board of Microsoft Corporation (India) Pvt Ltd and the Blackstone Group.

Dr. Ganguly is a recipient of the Padma Bhushan, one of India's highest honours (1987) and the Padma Vibhushan, India's second highest civilian award. He was awarded the CBE (Hon) by the United Kingdom in 2006 and the Economic Times Lifetime Achievement Award in 2008.

About Dr. Reddy's

Established in 1984, Dr. Reddy's Laboratories (NYSE: RDY) is an emerging global pharmaceutical company with proven research capabilities. The Company is vertically integrated with a presence across the pharmaceutical value chain. It produces finished dosage forms, active pharmaceutical ingredients and biotechnology products and markets them globally, with focus on India, US, Europe and Russia. The Company conducts research in the areas of cancer, diabetes, cardiovascular, inflammation and bacterial infection.

Disclaimer

This press release includes forward-looking statements, as defined in the U.S. Private Securities Litigation Reform Act of 1995. We have based these forward-looking statements on our current expectations and projections about future events. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. Such factors include, but are not limited to, changes in local and global economic conditions, our ability to successfully implement our strategy, the market acceptance of and demand for our products, our growth and expansion, technological change and our exposure to market risks. By their nature, these expectations and projections are only estimates and could be materially different from actual results in the future.

Notes

1. Financial discussions are on a consolidated basis as per IFRS.

2. Detailed analysis of the financials is available on the Company's website at www.drreddys.com.

    Source: Dr. Reddy's Laboratories Ltd.

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