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Form 6-K DR REDDYS LABORATORIES For: Dec 31

January 28, 2022 10:28 AM EST

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13A-16 OR 15D-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarter Ended December 31, 2021

 

Commission File Number 1-15182

 

DR. REDDY’S LABORATORIES LIMITED

(Translation of registrant’s name into English)

 

8-2-337, Road No. 3, Banjara Hills

Hyderabad, Telangana 500 034, India

+91-40-49002900

 

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

Form 20-F  x Form 40-F   ¨

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ______

 

Yes  ¨ No   x

 

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

 

Yes  ¨ No   x

 

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

 

 

 

 

 

 

QUARTERLY REPORT

Quarter Ended December 31, 2021

 

Currency of Presentation and Certain Defined Terms

 

In this Quarterly Report, references to “$” or “dollars” or “U.S.$” or “U.S. dollars” are to the legal currency of the United States, references to “Rs.” or “rupees” or “Indian rupees” or “INR” are to the legal currency of India, references to “MXN” are to the legal currency of Mexico, references to “ZAR” are to the legal currency of South Africa, references to “UAH” are to the legal currency of Ukraine, references to “GBP” are to the legal currency of United Kingdom and references to “EUR” or “euros” are to the legal currency of the European Union. Our unaudited condensed consolidated interim financial statements are presented in Indian rupees and are prepared in accordance with International Accounting Standard 34, “Interim Financial Reporting” (“IAS 34”). Convenience translation into U.S. dollars with respect to our unaudited condensed consolidated interim financial statements is also presented. References to a particular “fiscal” year are to our fiscal year ended March 31 of such year. References to “ADSs” are to our American Depositary Shares. All references to “IAS” are to the International Accounting Standards, to “IASB” are to the International Accounting Standards Board, to “IFRS” are to International Financial Reporting Standards as issued by the IASB, to “SIC” are to the Standing Interpretations Committee and to "IFRIC" are to the International Financial Reporting Interpretations Committee. References to “FVTOCI” are to fair value through other comprehensive income and to “FVTPL” are to fair value through profit and loss.

 

References to “U.S. FDA” are to the United States Food and Drug Administration, to “ANDS” are to Abbreviated New Drug Submissions, to “NDAs” are to New Drug Applications, and to “ANDAs” are to Abbreviated New Drug Applications.

 

References to “U.S.” or “United States” are to the United States of America, its territories and its possessions. References to “India” are to the Republic of India. References to “EU” are to the European Union. References to “CIS” are to the Commonwealth of Independent States, which is comprised of certain countries of the former Soviet Union. All references to “we”, “us”, “our”, “DRL”, “Dr. Reddy’s” or the “Company” shall mean Dr. Reddy’s Laboratories Limited and its subsidiaries. “Dr. Reddy’s” is a registered trademark of Dr. Reddy’s Laboratories Limited in India. Other trademarks or trade names used in this Quarterly Report are trademarks registered in the name of Dr. Reddy’s Laboratories Limited or are pending before the respective trademark registries, unless otherwise specified. Market share data is based on information provided by IQVIA Holdings Inc. (formerly Quintiles IMS Holding Inc.) (“IQVIA”), a provider of market research to the pharmaceutical industry, unless otherwise stated.

 

Except as otherwise stated in this report, all convenience translations from Indian rupees to U.S. dollars are at the certified foreign exchange rate of U.S.$1.00 = Rs.74.39, as published by Federal Reserve Board of Governors on December 30, 2021. No representation is made that the Indian rupee amounts have been, could have been or could be converted into U.S. dollars at such a rate or any other rate. Any discrepancies in any table between totals and sums of the amounts listed are due to rounding.

 

Our main corporate website address is https://www.drreddys.com. Information contained in our website, www.drreddys.com, is not part of this Quarterly Report and no portion of such information is incorporated herein.

 

Forward-Looking Statements and Risk Factor Summary

 

In addition to historical information, this quarterly report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). 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. The forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, risks relating to:

 

in our generics medicines business: consolidation of our customer base and commercial alliances among our customers; the increase in the number of competitors targeting generic opportunities and seeking U.S. market exclusivity for generic versions of significant products; price erosion relating to our generic products, both from competing products and increased regulation; delays in launches of new generic products; efforts of pharmaceutical companies to limit the use of generics including through legislation and regulations; the difficulty and expense of obtaining licenses to proprietary technologies; returns, allowances and chargebacks; and investigations of the calculation of wholesale prices;

 

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in our specialty medicines business: competition for our specialty products; our ability to achieve expected results from investments in our product pipeline; competition from companies with greater resources and capabilities; and the effectiveness of our patents and other measures to protect our intellectual property rights;

 

our business and operations in general, including: our ability to develop and commercialize additional pharmaceutical products; manufacturing or quality control problems, which may damage our reputation for quality production and require costly remediation; interruptions in our supply chain; disruptions of our or third party information technology systems or breaches of our data security or other cyber-attacks; the failure to recruit or retain key personnel; challenges associated with conducting business globally, including adverse effects of political or economic instability, major hostilities or terrorism; significant sales to a limited number of customers in our U.S. market; our ability to successfully bid for suitable acquisition targets or licensing opportunities, or to consummate and integrate acquisitions;

 

compliance, regulatory and litigation matters, including: costs and delays resulting from the extensive governmental regulation to which we are subject; the effects of reforms in healthcare regulation and reductions in pharmaceutical pricing, reimbursement and coverage; governmental investigations into selling and marketing practices; potential liability for patent infringement; product liability claims; increased government scrutiny of our patent settlement agreements; failure to comply with complex Medicare and Medicaid reporting and payment obligations; and environmental risks;

 

other financial and economic risks, including: our exposure to currency fluctuations and restrictions as well as credit risks; potential impairments of our intangible assets; potential significant increases in tax liabilities; and the effect on our overall effective tax rate of the termination or expiration of governmental programs or tax benefits, or of a change in our business;

 

our business and operations in general, including uncertainty regarding the magnitude, duration, and geographic reach of the COVID-19 pandemic and its impact on our business, financial condition, operations, cash flows, and liquidity and on the economy in general; manufacturing or quality control protocols; interruptions in our supply chain, including due to potential effects of the COVID-19 pandemic on our operations and business in geographic locations impacted by the pandemic and on the business operations of our customers and suppliers; our ability to successfully execute and maintain the activities and efforts related to the measures we have taken or may take in response to the COVID-19 pandemic and associated costs therewith; challenges associated with conducting business globally, including adverse effects of the COVID-19 pandemic; costs resulting from the extensive governmental regulation to which we are subject or delays in governmental processing time due to modified government operations due to the COVID-19 pandemic, including effects on product and patent approvals due to the COVID-19 pandemic; disruptions of information technology systems; and our ability to successfully compete in the marketplace;

 

compliance matters including U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws, which impose restrictions and may carry substantial penalties, which risks include without limitation the following: We work with third-party distributors and other agents for the marketing and distribution of our products and, although our policies prohibit these third parties from making improper payments or otherwise violating these anti-bribery laws, any lapses in complying with such anti-bribery laws by these third parties may adversely impact us. We may be subject to injunctions or limitations on future conduct, be required to modify our business practices and compliance programs and/or have a compliance monitor imposed on us, or suffer other criminal or civil penalties or adverse impacts, including lawsuits by private litigants or investigations and fines imposed by local authorities. Actions by our employees, or third-party intermediaries acting on our behalf, in violation of such laws, whether carried out in the United States or elsewhere, may expose us to liability for violations of such anti-bribery laws and accordingly may have a material adverse effect on our reputation and our business, financial positions, results of operations, and/or cash flows; and

 

those discussed in the sections entitled “risk factors” in our most recent Annual Report on Form 20-F for the fiscal year ended March 31, 2021 and “operating and financial review and prospects” and elsewhere in this quarterly report.

 

Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis and assumptions only as of the date hereof. In addition, readers should carefully review the other information in this quarterly report, in our most recent Annual Report on Form 20-F for the fiscal year ended March 31, 2021 and in our periodic reports and other documents filed with and/or furnished to the SEC from time to time.

 

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TABLE OF CONTENTS

 

ITEM 1. FINANCIAL STATEMENTS 5
ITEM 2. OPERATING AND FINANCIAL REVIEW, TREND INFORMATION 37
ITEM 3. LIQUIDITY AND CAPITAL RESOURCES 46
ITEM 4. OTHER MATTERS 48
ITEM 5. EXHIBITS 48
SIGNATURES 49
EXHIBIT 99.1: REVIEW REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 1

 

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ITEM 1. FINANCIAL STATEMENTS

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION

(in millions, except share and per share data)

 

       As of 
Particulars  Note   December 31, 2021   December 31, 2021   March 31, 2021 
       Convenience translation
(See Note 2(d))
         
ASSETS                    
Current assets                    
Cash and cash equivalents   4   U.S.$295   Rs.21,976   Rs.14,829 
Other investments   5    178    13,224    19,744 
Trade and other receivables   6    839    62,446    49,641 
Inventories   7    668    49,675    45,412 
Derivative financial instruments        24    1,801    1,218 
Tax assets        48    3,561    2,745 
Other current assets        188    13,995    14,509 
Total current assets before assets held for sale       U.S.$2,241   Rs.166,678   Rs. 148,098 
Assets held for sale        2    151    151 
Total current assets       U.S.$2,243   Rs.166,829   Rs. 148,249 
Non-current assets                    
Property, plant and equipment   8   U.S.$846   Rs.62,971   Rs.57,111 
Goodwill   9    61    4,546    4,568 
Other intangible assets   10    431    32,035    35,648 
Trade and other receivables   6    1    61    118 
Investment in equity accounted investees        56    4,135    3,375 
Other investments   5    32    2,356    4,958 
Deferred tax assets        116    8,628    10,630 
Other non-current assets        13    938    834 
Total non-current assets       U.S.$1,555   Rs.115,670   Rs. 117,242 
Total assets       U.S.$3,798   Rs.282,499   Rs. 265,491 
LIABILITIES AND EQUITY                    
Current liabilities                    
Trade and other payables       U.S.$329   Rs.24,492   Rs.23,744 
Short-term borrowings   11    287    21,331    23,136 
Long-term borrowings, current portion   11    11    800    864 
Provisions        54    4,008    3,435 
Tax liabilities        21    1,588    1,389 
Derivative financial instruments        2    128    326 
Bank overdraft        -    -    9 
Other current liabilities        421    31,307    30,488 
Total current liabilities       U.S.$1,125   Rs.83,654   Rs. 83,391 
Non-current liabilities                    
Long-term borrowings   11    U.S.$81   Rs.6,033   Rs.6,299 
Deferred tax liabilities        1    108    338 
Provisions        1    58    58 
Other non-current liabilities        35    2,630    2,343 
Total non-current liabilities       U.S.$119   Rs.8,829   Rs. 9,038 
Total liabilities       U.S.$1,243   Rs.92,483   Rs. 92,429 
Equity                    
Share capital   12   U.S.$11   Rs.833   Rs.832 
Treasury shares   12    (22)   (1,612)   (1,967)
Share premium        124    9,256    8,887 
Share-based payment reserve        20    1,513    1,461 
Capital redemption reserve        2    173    173 
Special economic zone re-investment reserve        13    982    1,326 
Retained earnings        2,351    174,914    156,023 
Other components of equity        53    3,957    6,327 
Total equity       U.S.$2,554   Rs. 190,016   Rs.173,062 
Total liabilities and equity       U.S.$3,798   Rs.282,499   Rs. 265,491 

 

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.

 

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DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED INTERIM INCOME STATEMENTS

(in millions, except share and per share data)

 

     

For the nine months

ended December 31,

   For the three months
ended December 31,
 
Particulars  Note  2021   2021   2020   2021   2020 
     

Convenience
translation

(See Note 2(d))

                 
Revenues  13  U.S.$2,151   Rs.160,023   Rs.142,438   Rs.53,197   Rs.49,296 
Cost of revenues      1,007    74,926    64,736    24,585    22,758 
Gross profit      1,144    85,097    77,702    28,612    26,538 
Selling, general and administrative expenses      624    46,407    40,280    15,411    14,387 
Research and development expenses      177    13,156    12,447    4,159    4,108 
Impairment of non-current assets      1    47    6,753    47    5,972 
Other income, net  14   (33)   (2,470)   (395)   (240)   (128)
Total operating expenses      768    57,140    59,085    19,377    24,339 
Results from operating activities (A)      376    27,957    18,617    9,235    2,199 
Finance income      26    1,902    2,008    504    681 
Finance expense      (9)   (642)   (673)   (215)   (188)
Finance income, net (B)  15   17    1,260    1,335    289    493 
Share of profit of equity accounted investees, net of tax (C)      8    598    301    185    151 
Profit before tax [(A)+(B)+(C)]      401    29,815    20,253    9,709    2,843 
Tax expense  16   96    7,122    6,639    2,644    2,645 
Profit for the period     U.S.$305   Rs.22,693   Rs.13,614   Rs.7,065   Rs.198 
Earnings per share:                            
Basic earnings per share of Rs.5/- each     U.S.$1.84   Rs. 136.82   Rs.82.08   Rs. 42.58   Rs. 1.19 
Diluted earnings per share of Rs.5/- each     U.S.$ 1.83   Rs.136.48   Rs. 81.85   Rs. 42.48   Rs. 1.19 

 

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.

 

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DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME

(in millions, except share and per share data)

 

  

For the nine months

ended December 31,

   For the three months
ended December 31,
 
Particulars  2021   2021   2020   2021   2020 
  

Convenience
translation

(See Note 2(d))

                 
Profit for the period  U.S.$305   Rs. 22,693   Rs.13,614   Rs.7,065   Rs.198 
Other comprehensive (loss)/income                         
Items that will not be reclassified subsequently to the consolidated income statement:                         
Changes in the fair value of financial instruments  U.S.$ (35)  Rs.(2,587)   Rs.2,985   Rs. (1,243)   Rs. 2,804 
Tax impact on above items   4    293    -    -    - 
Total of items that will not be reclassified subsequently to the consolidated income statement  U.S.$ (31)  Rs.(2,294)   Rs. 2,985   Rs.(1,243)   Rs.2,804 
Items that will be reclassified subsequently to the consolidated income statement:                         
Changes in the fair value of financial instruments  U.S.$-   Rs.-   Rs.7   Rs.-   Rs.44 
Foreign currency translation adjustments   (0)   (27)   753    (81)   731 
Effective portion of changes in fair value of cash flow hedges, net   (1)   (88)   976    198    59 
Tax impact on above items   1    39    (295)   (57)   (1)
Total of items that will be reclassified subsequently to the consolidated income statement  U.S.$ (1)  Rs. (76)  Rs.1,441   Rs.60   Rs.833 
Other comprehensive (loss)/income for the period, net of tax  U.S.$ (32)  Rs. (2,370)  Rs. 4,426   Rs. (1,183)  Rs. 3,637 
Total comprehensive income for the period  U.S.$ 273   Rs.20,323   Rs. 18,040   Rs. 5,882   Rs. 3,835 

 

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.

 

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DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY

(in millions, except share and per share data)

 

   Share capital   Share premium   Treasury shares   Share-based payment reserve   Fair value reserve(1)   Foreign currency translation reserve   Hedging reserve   Capital redemption reserve   Special economic zone re-investment reserve(2)  

Actuarial gains

/(losses)

   Retained earnings   Total 
Balance as of April 1, 2021 (A)  Rs.832   Rs.8,887   Rs.(1,967)   Rs.1,461   Rs.1,540   Rs.5,049   Rs. 241   Rs. 173   Rs. 1,326   Rs. (503)   Rs. 156,023   Rs.173,062 
Profit for the period   -    -    -    -    -    -    -    -    -    -    22,963    22,693 
Net change in fair value of equity instruments, net of tax benefit of Rs.293   -    -    -    -    (2,294)   -    -    -    -    -    -    (2,294)
Foreign currency translation adjustments   -    -    -    -    -    (27)   -    -    -    -    -    (27)
Effective portion of changes in fair value of cash flow hedges, net of tax benefit of Rs.39   -    -    -    -    -    -    (49)   -    -    -    -    (49)
Total comprehensive income (B)  Rs.-   Rs.-   Rs.-   Rs.-   Rs.(2,294)  Rs.(27)  Rs.(49)  Rs.-   Rs.-    Rs. -    Rs. 22,963    Rs.20,323 
Issue of equity shares on exercise of options   1    369    355    (399)   -    -    -    -    -    -    -    326 
Share-based payment expense   -    -    -    451    -    -    -    -    -    -    -    451 
Dividend paid   -    -    -    -    -    -    -    -    -    -    (4,146)   (4,146)
Total transactions (C)  Rs. 1   Rs. 369   Rs. 355   Rs. 52   Rs. -   Rs. -   Rs. -   Rs. -   Rs. -   Rs.-   Rs. (4,146)   Rs. (3,369) 
Transfer from special economic zone re-investment reserve on utilization (D)  Rs. -   Rs. -   Rs.-   Rs. -   Rs. -   Rs. -   Rs. -   Rs. -   Rs. (344)   Rs.-   Rs. 344   Rs.- 
Balance as of December 31, 2021 [(A)+(B)+(C)+(D)]  Rs. 833   Rs. 9,256   Rs. (1,612)   Rs. 1,513   Rs. (754)   Rs. 5,022   Rs. 192   Rs. 173   Rs. 982   Rs. (503)   Rs. 174,914   Rs. 190,016 
Convenience translation  (See note 2(d))  U.S.$ 11   U.S.$124   U.S.$ (22)   U.S.$ 20   U.S.$ (10)   U.S.$ 68   U.S.$ 3   U.S.$ 2   U.S.$ 13   U.S.$ (7)   U.S.$ 2,351   U.S.$ 2,554 
                                                             
Balance as of April 1, 2020 (A)  Rs.831   Rs. 8,495   Rs. (1,006)  Rs. 1,223   Rs. (2,405)  Rs.4,343   Rs. (563)   Rs. 173   Rs.-   Rs. (360)  Rs. 144,247   Rs. 154,988 
Profit for the period   -    -    -    -    -    -    -    -    -    -    13,614    13,614 
Net change in fair value of equity and debt instruments   -    -    -    -    2,992    -    -    -    -    -    -    2,992 
Foreign currency translation adjustments   -    -    -    -    -    753    -    -    -    -    -    753 
Effective portion of changes in fair value of cash flow hedges, net of tax expense of Rs.295   -    -    -    -    -    -    681    -    -    -    -    681 
Total comprehensive income (B)  Rs.-   Rs.-   Rs.-   Rs. -   Rs. 2,992   Rs. 753   Rs. 681   Rs. -   Rs. -   Rs. -   Rs. 13,614   Rs.18,040 
Issue of equity shares on exercise of options   -*   386    207    (344)   -    -    -    -    -    -    -    249 
Share-based payment expense   -    -    -    455    -    -    -    -    -    -    -    455 
Purchase of treasury shares   -    -    (190)   -    -    -    -    -    -    -    -    (190)
Dividend paid   -    -    -    -    -    -    -    -    -    -    (4,147)   (4,147)
Total transactions (C)  Rs.-   Rs. 386   Rs. 17   Rs. 111   Rs. -   Rs. -   Rs. -   Rs. -   Rs.-   Rs. -   Rs. (4,147)  Rs. (3,633) 
Transfer to special economic zone re-investment reserve (D)  Rs.-   Rs. -   Rs. -   Rs. -   Rs. -   Rs. -   Rs. -   Rs. -   Rs. 1,529   Rs. -   Rs.(1,529)  Rs.- 
Balance as of December 31, 2020 [(A)+(B)+(C)+(D)]  Rs. 831   Rs. 8,881   Rs. (989)   Rs. 1,344   Rs. 587   Rs. 5,096   Rs.118   Rs. 173   Rs. 1,529   Rs. (360)   Rs. 152,185   Rs. 169,395 

 

* Rounded to the nearest million.

 

(1)Represents mark to market gain or loss on financial assets classified as fair value through other comprehensive income (“FVTOCI”). Depending on the category and type of the financial asset, the mark to market gain or loss is either reclassified to the income statement or to retained earnings upon disposal of the investment.

 

(2)The Company has created a Special Economic Zone (“SEZ”) Reinvestment Reserve out of profits of its eligible SEZ Units in accordance with the terms of Section 10AA(1) of the Indian Income Tax Act, 1961. This reserve is to be utilized by the Company for acquiring Plant and Machinery in accordance with Section 10AA(2) of such Act.

 

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements

 

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DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

(in millions, except share and per share data)

 

   For the nine months ended December 31, 
Particulars  2021   2021   2020 
   Convenience
translation (See
Note 2(d))
         
Cash flows from operating activities:               
Profit for the period  U.S.$305   Rs.22,693   Rs.13,614 
Adjustments for:               
Tax expense   96    7,122    6,639 
Fair value changes and profit on sale of financial instruments measured at FVTPL, net   (3)   (243)   (500)
Depreciation and amortization   119    8,866    9,627 
Impairment of non-current assets   1*   47    6,753 
Allowance for credit losses (on trade receivables and other advances)   2    135    172 
(Gain)/loss on sale or de-recognition of non-current assets, net   (16)   (1,186)   38 
Share of profit of equity accounted investees   (8)   (598)   (301)
Foreign exchange (gain)/loss, net   (4)   (334)   1,513 
Interest (income)/expense, net   (1)*   (66)   13 
Equity settled share-based payment expense   6    451    455 
Changes in operating assets and liabilities:               
Trade and other receivables   (173)   (12,867)   (1,573)
Inventories (Refer to Note 7 for inventory write downs)   (57)   (4,263)   (8,777)
Trade and other payables   46    3,417    4,061 
Other assets and other liabilities, net   18    1,349    (3,862)
Cash generated from operations   330    24,523    27,872 
Income tax paid, net   (74)   (5,534)   (3,435)
Net cash from operating activities  U.S.$255   Rs.18,989   Rs.24,437 
Cash flows used in investing activities:               
Expenditures on property, plant and equipment   (147)   (10,919)   (6,866)
Proceeds from sale of property, plant and equipment   3    191    56 
Expenditures on other intangible assets   (55)   (4,103)   (2,492)
Proceeds from sale of other intangible assets   40    2,946    - 
Payment for acquisition of business (Refer to Note 24 for details)   -    -    (15,514)
Purchase of other investments   (548)   (40,769)   (58,876)
Proceeds from sale of other investments   640    47,583    69,411 
Interest received   9    672    1,071 
Net cash used in investing activities  U.S.$(59)   Rs.(4,399)   Rs.(13,210) 
Cash flows used in financing activities:               
Proceeds from issuance of equity shares (including treasury shares)   4    326    249 
Purchase of treasury shares   -    -    (190)
(Repayment of)/proceeds from short-term borrowings   (28)   (2,083)   (3,347)
Proceeds from long-term borrowings   -    -    3,800 
Repayment of long-term borrowings   -    -    (3,743)
Payment of principal portion of lease liabilities   (8)   (584)   (565)
Dividend paid   (56)   (4,146)   (4,147)
Interest paid   (14)   (1,032)   (995)
Net cash used in financing activities  U.S.$(101)  Rs.(7,519)  Rs.(8,938)
Net increase in cash and cash equivalents   95    7,071    2,289 
Effect of exchange rate changes on cash and cash equivalents   1    85    70 
Cash and cash equivalents at the beginning of the period   199    14,820    1,962 
Cash and cash equivalents at the end of the period (Refer to Note 4 for details)  U.S.$295   Rs.21,976   Rs.4,321 

 

* Rounded to the nearest million.

 

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.

 

 9 

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

1. Reporting entity

 

Dr. Reddy’s Laboratories Limited (the “parent company”), together with its subsidiaries and joint ventures (collectively, the “Company”), is a leading India-based pharmaceutical company headquartered and having its registered office in Hyderabad, Telangana, India. Through its three businesses - Pharmaceutical Services and Active Ingredients, Global Generics and Proprietary Products – the Company offers a portfolio of products and services, including Active Pharmaceutical Ingredients (“APIs”), Custom Pharmaceutical Services (“CPS”), generics, biosimilars and differentiated formulations.

 

The Company’s principal research and development facilities are located in the states of Telangana and Andhra Pradesh in India, Cambridge in the United Kingdom and Leiden in the Netherlands; its principal manufacturing facilities are located in the states of Telangana, Andhra Pradesh and Himachal Pradesh in India, Cuernavaca-Cuautla in Mexico, Mirfield in the United Kingdom, and Louisiana in the United States; and its principal markets are in India, Russia, the United States, the United Kingdom, and Germany. The Company’s shares trade on the Bombay Stock Exchange, the National Stock Exchange, the NSE IFSC Limited in India and on the New York Stock Exchange in the United States.

 

2. Basis of preparation of financial statements

 

a) Statement of compliance

 

These unaudited condensed consolidated interim financial statements (hereinafter referred to as “interim financial statements”) are prepared in accordance with IAS 34, “Interim Financial Reporting” as issued by the International Accounting Standards Board (“IASB”). They do not include all of the information required for a complete set of annual financial statements and should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 20-F for the fiscal year ended March 31, 2021. These interim financial statements were authorized for issuance by the Company’s Board of Directors on January 28, 2022.

 

b) Significant accounting policies

 

The accounting policies applied by the Company in these interim financial statements are the same as those applied by the Company in its audited consolidated financial statements as of and for the fiscal year ended March 31, 2021 contained in the Company’s Annual Report on Form 20-F.

 

Several amendments and interpretations apply for the first time in the fiscal year ending March 31, 2022, but do not have an impact on these interim financial statements.

 

c) Basis of measurement

 

These interim financial statements have been prepared on the historical cost convention and on an accrual basis, except for the following material items in the statements of financial position:

 

·derivative financial instruments are measured at fair value;
·financial assets are measured either at fair value or at amortized cost, depending on the classification;
·employee defined benefit assets/(liabilities) are recognized as the net total of the fair value of plan assets, adjusted for actuarial gains/(losses) and the present value of the defined benefit obligation;
·long-term borrowings are measured at amortized cost using the effective interest rate method;
·share-based payments are measured at fair value;
·investments in joint ventures are accounted for using the equity method;
·assets held for sale are measured at fair value;
·assets acquired and liabilities assumed as part of business combinations are measured at fair value; and
·right-of-use assets and lease liabilities are recognized at the present value of lease payments that are not paid at that date. This amount is adjusted for any lease payments made at or before the commencement date, lease incentives received and initial direct costs, incurred, if any.

 10 

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

2. Basis of preparation of financial statements (continued)

 

d) Convenience translation

 

These interim financial statements have been prepared in Indian rupees. Solely for the convenience of the reader, these interim financial statements as of and for the three months and nine months ended December 31, 2021 have been translated into U.S. dollars at the certified foreign exchange rate of U.S.$1.00 = Rs.74.39, as published by the Federal Reserve Board of Governors on December 30, 2021. No representation is made that the Indian rupee amounts have been, could have been or could be converted into U.S. dollars at such a rate or any other rate. Such convenience translation is not subject to review by the Company’s independent registered public accounting firm.

 

e) Functional and presentation currency

 

These interim financial statements are presented in Indian rupees, which is the functional currency of the parent company. All financial information presented in Indian rupees has been rounded to the nearest million.

 

In respect of certain non-Indian subsidiaries that operate as marketing arms of the parent company in their respective countries/regions, the functional currency has been determined to be the functional currency of the parent company (i.e., the Indian rupee). The operations of these entities are largely restricted to importing of finished goods from the parent company in India, sales of these products in the foreign country and making of import payments to the parent company. The cash flows realized from sales of goods are available for making import payments to the parent company and cash is paid to the parent company on a regular basis. The costs incurred by these entities are primarily the cost of goods imported from the parent company. The financing of these subsidiaries is done directly or indirectly by the parent company.

 

In respect of subsidiaries whose operations are self-contained and integrated within their respective countries/regions, the functional currency has been generally determined to be the local currency of those countries/regions, unless use of a different currency is considered appropriate.

 

f) Use of estimates and judgments

 

The preparation of interim financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. In preparing these interim financial statements, the significant judgments made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the audited consolidated financial statements as of and for the fiscal year ended March 31, 2021.

 

 11 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

3. Segment reporting

 

The Chief Operating Decision Maker (“CODM”) evaluates the Company’s performance and allocates resources based on an analysis of various performance indicators by operating segments. The CODM reviews revenue and gross profit as the performance indicator for all of the operating segments, and does not review the total assets and liabilities of an operating segment. The Co-Chairman and Managing Director was previously the CODM of the Company. Pursuant to certain organizational changes, effective December 1, 2020, the office of Chief Executive Officer (“CEO”) assumed the authority and responsibility for making decisions about resources to be allocated to various segments and assessing their performance. Consequently, the CEO is currently the CODM of the Company.

 

The Company’s reportable operating segments are as follows:

 

·Global Generics;
·Pharmaceutical Services and Active Ingredients (“PSAI”);
·Proprietary Products; and
·Others.

 

Global Generics. This segment consists of the Company’s business of manufacturing and marketing prescription and over-the-counter finished pharmaceutical products ready for consumption by the patient, marketed under a brand name (branded formulations) or as generic finished dosages with therapeutic equivalence to branded formulations (generics). This segment includes the operations of the Company’s biologics business.

 

Pharmaceutical Services and Active Ingredients. This segment primarily consists of the Company’s business of manufacturing and marketing active pharmaceutical ingredients and intermediates, also known as “API”, which are the principal ingredients for finished pharmaceutical products. Active pharmaceutical ingredients and intermediates become finished pharmaceutical products when the dosages are fixed in a form ready for human consumption such as a tablet, capsule or liquid using additional inactive ingredients. This segment also includes the Company’s contract research services business and the manufacture and sale of active pharmaceutical ingredients and steroids in accordance with the specific customer requirements.

 

Proprietary Products. This segment consists of the Company’s business that focuses on the research and development of differentiated formulations. The segment is expected to earn revenues arising out of monetization of such assets and subsequent royalties, if any.

 

Others. This segment consists of the operations of the Company’s wholly-owned subsidiary, Aurigene Discovery Technologies Limited (“ADTL”), a discovery stage biotechnology company developing novel and best-in-class therapies in the fields of oncology and inflammation. ADTL works with established pharmaceutical and biotechnology companies through customized models of drug-discovery collaborations.

 

The measurement of each segment’s revenues, expenses and assets is consistent with the accounting policies that are used in preparation of the Company’s consolidated financial statements.

 

 12 

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

 

3. Segment reporting (continued)

 

Information about segments:

  For the nine months ended December 31, 2021   For the nine months ended December 31, 2020 
Segments  Global Generics   PSAI   Proprietary Products   Others   Total   Global Generics   PSAI   Proprietary Products   Others   Total 
Revenues(1)  Rs.133,052   Rs. 23,183   Rs. 1,420   Rs. 2,368   Rs. 160,023   Rs.115,667   Rs. 24,067   Rs. 280   Rs. 2,424   Rs. 142,438 
Gross profit  Rs. 76,440   Rs. 5,434   Rs. 1,406   Rs. 1,817   Rs. 85,097   Rs. 68,665   Rs. 6,913   Rs. 244   Rs. 1,880   Rs. 77,702 
Selling, general and administrative expenses                       46,407                        40,280 
Research and development expenses                       13,156                        12,447 
Impairment of non-current assets                       47                        6,753 
Other income, net                       (2,470)                       (395)
Results from operating activities                      Rs.27,957                       Rs. 18,617 
Finance income, net                       1,260                        1,335 
Share of profit of equity accounted investees, net of tax                       598                        301 
Profit before tax                      Rs. 29,815                       Rs. 20,253 
Tax expense                       7,122                        6,639 
Profit for the period                      Rs. 22,693                       Rs. 13,614 

 

Information about segments:  For the three months ended December 31, 2021   For the three months ended December 31, 2020 
Segments  Global Generics   PSAI   Proprietary Products   Others   Total   Global Generics   PSAI   Proprietary Products   Others   Total 
Revenues(1)  Rs.44,508   Rs.7,271   Rs.129   Rs.1,289   Rs.53,197   Rs.40,751   Rs.7,009   Rs.124   Rs.1,412   Rs.49,296 
Gross profit  Rs.25,731   Rs.1,638   Rs.129   Rs.1,114   Rs.28,612   Rs.23,454   Rs.1,773   Rs.100   Rs.1,211   Rs.26,538 
Selling, general and administrative expenses                       15,411                        14,387 
Research and development expenses                       4,159                        4,108 
Impairment of non-current assets                       47                        5,972 
Other income, net                       (240)                       (128)
Results from operating activities                      Rs. 9,235                       Rs.2,199 
Finance income, net                       289                        493 
Share of profit of equity accounted investees, net of tax                       185                        151 
Profit before tax                      Rs. 9,709                       Rs.2,843 
Tax expense                       2,644                        2,645 
Profit for the period                      Rs. 7,065                       Rs.198 

 

(1)Revenues for the nine months ended December 31, 2021 and 2020 do not include inter-segment revenues from the PSAI segment to the Global Generics segment, which amount to Rs.4,556 and Rs.5,024, respectively. Revenues for the three months ended December 31, 2021 and 2020 do not include inter-segment revenues from the PSAI segment to the Global Generics segment, which amount to Rs.1,616 and Rs.1,736, respectively.

 

 13 

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

3. Segment reporting (continued)

 

Analysis of revenues by geography:

 

The following table shows the distribution of the Company’s revenues by country, based on the location of the customers:

 

   For the nine months ended
December 31,
   For the three months ended
December 31,
 
Country  2021   2020   2021   2020 
India  Rs.33,818   Rs.27,162   Rs.10,834   Rs.10,230 
United States   59,821    58,088    20,264    19,647 
Russia   14,015    11,779    4,746    4,529 
Others(1)   52,369    45,409    17,353    14,890 
   Rs. 160,023   Rs. 142,438   Rs.53,197   Rs.49,296 

 

(1)Others include Germany, the United Kingdom, Ukraine, Canada and other countries across the world.

 

4. Cash and cash equivalents

 

Cash and cash equivalents consist of the following:

 

   As of 
   December 31, 2021   March 31, 2021 
Cash on hand  Rs.1   Rs.1 
Balances with banks   21,333    14,324 
Term deposits with banks (original maturities less than 3 months)   642    504 
Cash and cash equivalents in the statements of financial position  Rs.21,976   Rs.14,829 
Restricted cash balances included above          
Balance in unclaimed dividends and debenture interest account  Rs.86   Rs.106 
Balances in Escrow account pursuant to the Business Transfer Agreement with Wockhardt Limited (Refer to Note 24 for details)   40    40 
Other restricted cash balances   72    82 

 

   As of 
   December 31, 2021   December 31, 2020 
Cash and cash equivalents in the statements of cash flow  Rs.21,976   Rs.4,321 

 

5. Other investments

 

Other investments consist of investments in units of mutual funds, equity securities, bonds, limited liability partnership firm interests and term deposits with banks (i.e., certificates of deposit having an original maturity period exceeding 3 months). The details of such investments as of December 31, 2021 and March 31, 2021 are as follows:

 

   As of December 31, 2021   As of March 31, 2021 
   Cost   Unrealized gain/(loss)   Fair value/ amortized cost(2)   Cost   Unrealized gain/(loss)   Fair value/ amortized cost(2) 
Current portion                              
In units of mutual funds  Rs.4,126   Rs.56   Rs. 4,182   Rs. 13,197   Rs.66   Rs. 13,263 
In bonds   -    -    -    522    -    522 
Term deposits with banks   9,042    -    9,042    5,959    -    5,959 
   Rs.13,168   Rs. 56   Rs. 13,224   Rs. 19,678   Rs. 66   Rs. 19,744 
Non-current portion                              
In equity securities(1)  Rs.2,701   Rs. (754)   Rs. 1,947   Rs. 2,701   Rs. 1,832   Rs.4,533 
In limited liability partnership firm   400    (16)   384    400    -    400 
Others   25    -    25    25    -    25 
   Rs. 3,126   Rs. (770)   Rs. 2,356   Rs. 3,126   Rs. 1,832   Rs. 4,958 

 

 14 

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

5. Other investments (continued)

 

(1)Primarily represents the shares of Curis, Inc. issued to the Company under a 2015 Collaboration Agreement with Curis, Inc., as amended. For further details, refer to Note 34 of the consolidated financial statements in the Company’s Annual Report on Form 20-F for the fiscal year ended March 31, 2021.

 

(2)Interest accrued but not due on bonds and term deposits with banks is included in other current assets.

 

For the purpose of measurement, the aforesaid investments are classified as follows:

 

Investments in units of mutual funds Fair value through profit and loss
Investments in bonds, term deposits with banks and others Amortized cost
Investments in equity securities Fair value through other comprehensive income (on account of irrevocable option elected at time of transition) and fair value through profit and loss
Investment in limited liability partnership firm interests Fair value through profit and loss

 

6. Trade and other receivables

 

   As of 
   December 31, 2021   March 31, 2021 
Current          
Trade and other receivables, gross  Rs.63,763   Rs.50,937 
Less: Allowance for credit losses   (1,317)   (1,296)
Trade and other receivables, net  Rs.62,446   Rs.49,641 
Non-current          
Trade and other receivables, gross(1)  Rs.61   Rs.118 
Less: Allowance for credit losses   -    - 
Trade and other receivables, net  Rs.61   Rs.118 

 

(1)Represents amounts receivable pursuant to an out-licensing arrangement with a customer. As these amounts are not expected to be realized within twelve months from the end of the reporting date, they are disclosed as non-current.

 

During the previous year, pursuant to an arrangement with a bank, the Company sold to the bank certain trade receivables of its Global Generics segment, on a non-recourse basis. The receivables sold were mutually agreed upon with the bank after considering the creditworthiness and contractual terms with the customer, including any gross to net adjustments (due to rebates, discounts etc.) from the contracted amounts. As a result, the receivables sold were not more than the total net amount of trade receivables. The Company had transferred substantially all the risks and rewards of ownership of such receivables sold to the bank, and accordingly, the same are derecognized in the statements of financial position. As on December 31, 2021 and March 31, 2021, the amount of trade receivables de-recognized pursuant to the aforesaid arrangement was Rs.0 and Rs.9,254, respectively.

 

7. Inventories

 

Inventories consist of the following:

 

   As of 
   December 31, 2021   March 31, 2021 
Raw materials  Rs.13,816   Rs.12,287 
Work-in-progress   11,992    10,009 
Finished goods (includes stock-in-trade)   20,247    19,829 
Packing materials, stores and spares   3,620    3,287 
   Rs.49,675    Rs.45,412 

 

Details of inventories recognized in these interim financial statements are as follows:

   For the nine months
ended December 31,
   For the three months
ended December 31,
 
   2021   2020   2021   2020 
Raw materials, consumables and changes in finished goods and work in progress  Rs. 52,427   Rs.43,396   Rs.17,161   Rs.15,927 
Inventory write-downs   3,017    1,978    986    450 

 15 

 

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

8. Property, plant and equipment

 

  

For the nine months ended

December 31,

   For the year ended
March 31,
 
   2021   2020   2021 
Opening balance  Rs.57,111   Rs.52,332   Rs.52,332 
Cost of assets acquired during the period(1)   12,038    10,105    13,159 
Assets acquired through business combinations(2)   -    373    373 
Net book value of assets disposed of during the period   (141)   (104)   (140)
Net book value of assets held for sale   -    (150)   (151)
Depreciation expense   (6,114)   (6,438)   (8,527)
Impairment loss   -    (46)   (46)
Effect of changes in foreign exchange rates   77    191    111 
Closing balance  Rs.62,971   Rs.56,263   Rs.57,111 

 

(1)Additions for the nine months ended December 31, 2020 and the fiscal year ended March 31, 2021 include recognition of a right-of-use asset of Rs.1,852 relating to a warehousing services agreement in the United States.

 

(2)Refer to Note 24 of these interim financial statements for further details.

 

Capital commitments

 

As of December 31, 2021 and March 31, 2021, the Company was committed to spend Rs. 8,959 and Rs.9,841, respectively, under agreements to purchase property, plant and equipment. This amount is net of capital advances paid in respect of such purchase commitments.

 

9. Goodwill

 

Goodwill arising on business combinations is not amortized but is tested for impairment at least annually, or more frequently if there is any indication that the cash generating unit to which goodwill is allocated is impaired.

 

The following table presents goodwill as of December 31, 2021 and March 31, 2021:

 

   As of 
   December 31, 2021   March 31, 2021 
Opening balance, gross  Rs.20,852   Rs.20,278 
Goodwill arising on business combinations(1)   -    530 
Effect of translation adjustments   (22)   44 
Impairment loss(2)    (16,284)   (16,284)
Closing balance  Rs.4,546   Rs.4,568 

 

(1)Refer to Note 24 of these interim financial statements for further details.

 

(2)The impairment loss of Rs.16,284 includes Rs.16,003 pertaining to the Company’s German subsidiary, betapharm Arzneimittel GmbH, which is part of the Company’s Global Generics segment. This impairment loss was recorded for the years ended March 31, 2009 and 2010.

 

 16 

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

10. Other intangible assets

 

  

For the nine months ended

December 31,

   For the year ended
March 31,
 
   2021   2020   2021 
Opening balance  Rs.35,648   Rs.27,659   Rs.27,659 
Cost of assets acquired during the period(1)(2)   906    4,275    6,411 
Assets acquired through business combinations(3)   -    14,888    14,888 
Net book value of assets disposed of during the period(4)   (1,883)   (41)   - 
Amortization expense   (2,752)   (3,189)   (4,269)
Impairment loss(5)   (47)   (6,707)   (8,542)
Effect of changes in foreign exchange rates   163    (457)   (499)
Closing balance  Rs.32,035   Rs.36,428   Rs.35,648 

 

(1)During the nine months ended December 31, 2020 and the fiscal year ended March 31, 2021, the Company entered into a definitive agreement with Glenmark Pharmaceuticals Limited to acquire marketing authorizations and other rights of select brands in four “Emerging Markets” countries. The acquired brands represent two products, (a) a mometasone mono product and (b) a combination of mometasone with azelastine, and are indicated for the treatment of seasonal and perennial allergic rhinitis. The total consideration paid was Rs.1,516. Following the principles of IAS 38, “Intangible Assets”, the Company recognized the acquired brands at their acquisition cost. The acquisition pertains to the Company’s Global Generics segment.

 

(2)During the nine months ended December 31, 2020 and the fiscal year ended March 31, 2021, the additions include Rs.1,471 and Rs.3,291, respectively, representing the expenditure for the purchase of intellectual property rights relating to products forming part of the Company’s Proprietary Products segment.

 

(3)Refer to Note 24 of these interim financial statements for further details.

 

(4)During the nine months ended December 31, 2021, the Company entered into a definitive agreement with Citius Pharmaceuticals, Inc. (“Citius”) pursuant to which it sold all of its rights relating to its anti-cancer agent E7777 (denileukin diftitox) to Citius. Under the terms of agreement, the Company will receive U.S.$40 up front upon the closing of the transaction, followed by a milestone payment of up to U.S.$40 related to the CTCL (cutaneous Tcell lymphoma) indication regulatory approval and up to U.S.$70 in milestone payments upon additional indication regulatory approvals. Further, the Company will receive certain sales-based milestones and tiered earn-out payments. Consequently, an amount of Rs.1,064, representing the excess of sale consideration over the carrying cost, has been recognized as gain on sale of intangible assets and was included under “Other income, net”. The transaction pertains to the Company’s Proprietary Products segment.

 

(5)Total impairment loss for the fiscal year ended March 31, 2021 was Rs.8,542 (and, for the nine months ended December 31, 2020 was Rs.6,707), of which Rs.3,291 was attributable to impairment of Xeglyze®, forming part of Company’s Proprietary Products segment, Rs.3,180 was attributable to impairment of ethinyl estradiol/ethenogestral vaginal ring (a generic equivalent to Nuvaring®), forming part of the Company’s Global Generics segment, Rs.1,587 was attributable to impairment of saxagliptin/ metformin (generic version of Kombiglyze®-XR) and phentermine and topiramate (generic version of Qsymia®), forming part of the Company’s Global Generics segment and the balance of Rs.484 was attributable to other product related intangibles forming part of the Company’s Global Generics segment.

 

Details of significant separately acquired intangible assets as of December 31, 2021 are as follows:

 

Particulars of the asset  Acquired from  Carrying cost 
Select portfolio of branded generics business  Wockhardt Limited  Rs.13,637 
Select portfolio of dermatology, respiratory and pediatric assets  UCB India Private Limited and affiliates   4,189 
Intellectual property rights relating to PPC-06 (tepilamide fumarate)  Xenoport, Inc.   4,230 
Various ANDAs  Teva and an affiliate of Allergan   3,461 
Select Anti-Allergy brands  Glenmark Pharmaceuticals Limited   1,411 
Habitrol® brand   Novartis Consumer Health Inc.   1,074 

 

 17 

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

11. Loans and borrowings

 

Short-term borrowings

 

Short-term borrowings consist of “pre-shipment credit” drawn by the parent company and other unsecured loans drawn by the parent company and certain of its subsidiaries in Russia, Brazil, Mexico, Ukraine, Switzerland and the United States which are repayable within 6 to 12 months from the date of drawdown.

 

Short-term borrowings consist of the following:

 

   As of 
   December 31, 2021   March 31, 2021 
Pre-shipment credit  Rs.16,211   Rs.10,300 
Other working capital borrowings   5,120    12,836 
   Rs.21,331   Rs.23,136 

 

The interest rate profile of short-term borrowings from banks is given below:

 

  As of
  December 31, 2021   March 31, 2021
  Currency(1)   Interest Rate(2)   Currency(1)   Interest Rate(2)
Pre-shipment credit INR   3 Months T-bill +10 bps to 25 bps   INR   3 Months T-bill + 30 bps
  -   -   INR   5.75%
Other working capital borrowings U.S.$   (1.90)% to (1.80)%(3)   U.S.$   (2.20)% to (1.80)% (3)
  RUB   6 Months MosPrime + 25 bps   RUB   3.00% to 3.40% and 5.55%
  MXN   TIIE + 1.15%   MXN   TIIE + 1.20%
  INR   3.90% to 4.01%     INR   4.00%
  BRL   CDI + 1.79%   BRL   4.00%
  UAH   7.25%   UAH   4.75%

 

(1)“INR” means Indian rupees, “U.S.$” means United States Dollars, “RUB” means Russian roubles, “MXN” means Mexican pesos, “BRL” means Brazilian reals and “UAH” means Ukrainian hryvnia.

 

(2)“TIIE” means the Equilibrium Inter-banking Interest Rate (Tasa de Interés Interbancaria de Equilibrio), “T-bill” means the India Treasury Bill interest rate, “MosPrime” means Moscow Prime Offered rate and “CDI” means the Certificado de Depósito Interbancário (a daily average of overnight interbank loans, which is used as an investment benchmark in the Brazilian financial system).

 

(3)Against some of its intra-group receivables denominated in U.S.$, the parent company obtained post-shipment credits from banks at an interest rate equal to the INR interest rate discounted by the U.S.$/INR forward premium, resulting in a negative U.S.$ interest rate.

 

Long-term borrowings

 

Long-term borrowings consist of the following:  As of 
   December 31, 2021   March 31, 2021 
   Non – Current   Current   Non – Current   Current 
Non-convertible debentures by the APSL subsidiary(1)  Rs.3,800   Rs.-   Rs.3,800   Rs.- 
Obligations under leases   2,233    800    2,499    864 
   Rs.6,033   Rs.800   Rs.6,299   Rs.864 

 

(1)“APSL subsidiary” refers to Aurigene Pharmaceutical Services Limited.

 

 18 

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

11. Loans and borrowings (continued)

 

The interest rate profiles of long-term borrowings (other than obligations under leases) as of December 31, 2021 and March 31, 2021 were as follows:

 

  As of
  December 31, 2021   March 31, 2021
  Currency(1)   Interest Rate   Currency(1)   Interest Rate
Non-convertible debentures INR   6.77%   INR   6.77%

 

(1)“INR” means Indian rupees.

 

Uncommitted lines of credit from banks

 

The Company had uncommitted lines of credit of Rs.40,604 and Rs.38,766 as of December 31, 2021 and March 31, 2021, respectively, from its banks for working capital requirements. The Company draw upon these lines of credit based on its working capital requirements.

 

12. Share capital

 

The following table presents the changes in number of equity shares and amount of equity share capital for the nine months ended December 31, 2021 and December 31, 2020:

 

   As of 
   December 31, 2021   December 31, 2020 
   Number   Amount   Number   Amount 
Opening number of equity shares/share capital   166,301,231   Rs.832    166,172,082   Rs.831 
Add: Equity shares issued pursuant to employee stock option plans(1)   115,661    1    126,034    -*
Closing number of equity shares/share capital   166,416,892   Rs.833    166,298,116   Rs.831 
Treasury shares(2)   471,571   Rs.1,612    361,504   Rs.989 

 

*Rounded off to nearest million.

 

(1)During the nine months ended December 31, 2021 and 2020, equity shares were issued as a result of the exercise of vested options granted to employees pursuant to the Dr. Reddy’s Employees Stock Option Scheme, 2002 and the Dr. Reddy’s Employees Stock Option Scheme, 2007. The options exercised had an exercise price of Rs.5, Rs.2,607, Rs.2,814 or Rs.3,679 per share. Upon the exercise of such options, the amount of compensation cost (computed using the grant date fair value) previously recognized in the "share based payment reserve” was transferred to “share premium” in the unaudited condensed consolidated interim statements of changes in equity.

 

(2)Pursuant to the special resolution approved by the shareholders in the Annual General Meeting held on July 27, 2018, the Dr. Reddy’s Employees ESOS Trust (the “ESOS Trust”) was formed to support the Dr. Reddy’s Employees Stock Option Scheme, 2018 by acquiring, from the Company or through secondary market acquisitions, equity shares which are used for issuance to eligible employees (as defined therein) upon exercise of stock options thereunder. During the nine months ended December 31, 2021 and 2020, an aggregate of 103,630 and 77,725 equity shares, respectively, were issued as a result of the exercise of vested options granted to employees pursuant to the Dr. Reddy’s Employees Stock Option Scheme, 2018. The options exercised had an exercise price of Rs.2,607, Rs.2,814 or Rs.3,679 per share. Upon the exercise of such options, the amount of compensation cost (computed using the grant date fair value) previously recognized in the “share based payment reserve” was transferred to “share premium” in the unaudited condensed consolidated interim statements of changes in equity. In addition, any difference between the carrying amount of treasury shares and the consideration received was recognized in the “share premium”. As of December 31, 2021 and March 31, 2021, the ESOS Trust had outstanding 471,571 and 575,201 shares, respectively, which it purchased from the secondary market for an aggregate consideration of Rs.1,612 and Rs.1,967, respectively.

 

 19 

 

  

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

13. Revenue from contracts with customers

 

   For the nine months
ended December 31,
   For the three months
ended December 31,
 
   2021   2020   2021   2020 
Sales  Rs.154,461   Rs.138,119   Rs.51,032   Rs.47,109 
Service income   3,306    3,386    1,649    1,821 
License fees(1)   2,256    933    516    366 
   Rs.160,023   Rs.142,438   Rs.53,197   Rs.49,296 

 

(1)In August 2021, the Company entered into a definitive agreement with BioDelivery Sciences International, Inc. (“BDSI”), pursuant to which the Company sold its U.S. and Canada territory rights for ELYXYB (celecoxib oral solution) 25 mg/mL, to BDSI. Under the terms of agreement, the Company will receive U.S.$6 up front upon closing followed by U.S.$9 one year from closing. Further, the Company is entitled to event based milestone payments upon achievement of certain regulatory approvals; sales-based milestone payments upon achievement of certain net sales thresholds in a calendar year; and quarterly earn-out payments based on a percentage (which varies based on sales volumes) of net sales of the product in the territory. The closing of the transaction was subject to satisfactory completion of customary closing conditions including the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act), as amended. Upon successful completion of the closing conditions, in September 2021, the Company recognized an amount of Rs.1,084 as licensee fee from this transaction.

 

Analysis of revenues by geography:

The following table shows the distribution of the Company’s revenues by country, based on the location of the customers:

 

   For the nine months
ended December 31,
   For the three months
ended December 31,
 
Country  2021   2020   2021   2020 
India  Rs.33,818   Rs.27,162   Rs.10,834   Rs.10,230 
United States   59,821    58,088    20,264    19,647 
Russia   14,015    11,779    4,746    4,529 
Others(1)   52,369    45,409    17,353    14,890 
   Rs.160,023   Rs.142,438   Rs.53,197   Rs.49,296 

 

(1)Others include Germany, the United Kingdom, Ukraine, Canada and other countries across the world.

 

Refund liabilities on account of sales returns amounting to Rs.3,349 and Rs.2,824 as of December 31, 2021 and March 31, 2021, respectively, have been included in provisions forming part of current liabilities.

 

14. Other income, net

 

Other income, net consists of the following:

 

   For the nine months
 ended December 31,
   For the three months
ended December 31,
 
   2021   2020   2021   2020 
(Gain)/loss on sale/disposal of non-current assets, net(1)  Rs.(1,186)  Rs.38   Rs.(25)  Rs.23 
Sale of spent chemicals   (252)   (179)   (101)   (66)
Scrap sales   (154)   (99)   (48)   (44)
Miscellaneous income, net   (878)   (155)   (66)   (41)
   Rs.(2,470)  Rs.(395)  Rs.(240)  Rs.(128)

 

(1)Refer to Note 10 of these interim financial statements for further details.

 

 20 

 

  

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

15. Finance income, net

 

Finance income, net consists of the following:

 

   For the nine months
ended December 31,
   For the three months
ended December 31,
 
   2021   2020   2021   2020 
Interest income  Rs.708   Rs.660   Rs.262   Rs.257 
Fair value changes and profit on sale of financial instruments measured at FVTPL, net   243    500    26    111 
Foreign exchange gain, net   951    848    216    313 
Finance income (A)  Rs.1,902   Rs.2,008   Rs.504   Rs.681 
Interest expense   (642)   (673)   (215)   (188)
Finance expense (B)  Rs.(642)  Rs.(673)  Rs.(215)  Rs.(188)
Finance income, net [(A)+(B)]  Rs.1,260   Rs.1,335   Rs.289   Rs.493 

 

16. Income taxes

 

Income tax expense is recognized based on the Company’s best estimate of the average annual income tax rate for the fiscal year applied to the pre-tax income of the interim period. The average annual income tax rate is determined for each taxing jurisdiction and applied individually to the interim period pre-tax income of each jurisdiction. The difference between the estimated average annual income tax rate and the enacted tax rate is accounted for by a number of factors, including the effect of differences between Indian and foreign tax rates, expenses that are not deductible for tax purposes, income exempted from income taxes, and effects of changes in tax laws and rates.

 

   For the nine months
ended December 31,
   For the three months
ended December 31,
 
   2021   2020   2021   2020 
Weighted average tax rate   23.9%   32.8%   27.1%   93.0%
Tax expense  Rs.7,122   Rs.6,639   Rs.2,644   Rs.2,645 
Tax (benefit)/expense recognised directly in the equity  Rs.(332)  Rs.295   Rs.57   Rs.1 

 

The effective tax rate for the nine months ended December 31, 2020 was higher due to a lower profit base on account of impairment losses of Rs. 6,753 million. After adjusting these impairment losses, the adjusted effective tax rate stands at 24.6% for the nine months ended December 31, 2020.

 

The effective tax rate for the nine months ended December 31, 2021 was lower as compared to the adjusted tax rate for the nine months ended December 31, 2020, primarily on account of the changes in our jurisdictional mix of earnings (i.e., an increase in the proportion of our profits from lower tax jurisdictions and decrease in proportion of our profits from higher tax jurisdictions).

 

The effective tax rate for the three months ended December 31, 2020 was significantly higher due to a lower profit base on account of impairment losses of Rs. 5,972 million.  After adjusting these impairment losses, the adjusted effective tax rate stands at 30% for the three months ended December 31, 2020.  The effective tax rate for the three months ended December 31, 2021 was lower as compared to the adjusted tax rate for three months ended December 31, 2020, primarily on account of the changes in our jurisdictional mix of earnings (i.e., an increase in the proportion of our profits from lower tax jurisdictions and decrease in the proportion of our profits from higher tax jurisdictions).

 

Tax expenses/(benefits) recognized directly in the equity primarily relates to tax effects on the changes in fair value of financial instruments and the changes in fair value of cash flow hedges.

 

 21 

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

17. Nature of expense

 

The following table shows supplemental information related to certain “nature of expense” items for the three months and nine months ended December 31, 2021 and 2020:

 

   For the nine months
ended December 31,
   For the three months
ended December 31,
 
Depreciation  2021   2020   2021   2020 
Cost of revenues  Rs.4,198   Rs.4,595   Rs.1,416   Rs.1,510 
Selling, general and administrative expenses   1,130    1,118    377    378 
Research and development expenses   786    725    273    243 
   Rs.6,114   Rs.6,438   Rs.2,066   Rs.2,131 

 

   For the nine months
 ended December 31,
   For the three months
ended December 31,
 
Amortization  2021   2020   2021   2020 
Cost of revenues  Rs.-   Rs.-   Rs.-   Rs.- 
Selling, general and administrative expenses   2,736    3,109    905    1,058 
Research and development expenses   16    80    5    27 
   Rs.2,752   Rs.3,189   Rs.910   Rs.1,085 

 

   For the nine months
ended December 31,
   For the three months
ended December 31,
 
Employee benefits  2021   2020   2021   2020 
Cost of revenues  Rs.8,731   Rs.8,701   Rs.2,843   Rs.2,753 
Selling, general and administrative expenses   16,736    15,111    5,488    5,225 
Research and development expenses   3,663    3,557    1,230    1,179 
   Rs.29,130   Rs.27,369   Rs.9,561   Rs.9,157 

 

18. Employee benefit plans

 

Gratuity benefits provided by the parent company

 

In accordance with applicable Indian laws, the Company has a defined benefit plan which provides for gratuity payments (the “Gratuity Plan”) and covers certain categories of employees in India. The Gratuity Plan provides a lump sum gratuity payment to eligible employees at retirement or termination of their employment. The amount of the payment is based on the respective employee’s last drawn salary and the years of employment with the Company. Effective September 1, 1999, the Company established the Dr. Reddy’s Laboratories Gratuity Fund (the “Gratuity Fund”) to fund the Gratuity Plan. Liabilities in respect of the Gratuity Plan are determined by an actuarial valuation, based upon which the Company makes contributions to the Gratuity Fund. Trustees administer the contributions made to the Gratuity Fund. Amounts contributed to the Gratuity Fund are invested in bonds issued by the Government of India and in debt securities and equity securities of Indian companies. The liability recorded by the Company towards this obligation was Rs.671 and Rs.631 as of December 31, 2021 and March 31, 2021, respectively.

 

Compensated absences

 

The Company provides for accumulation of compensated absences by certain categories of its employees. These employees can carry forward a portion of the unutilized compensated absences and utilize them in future periods or receive cash in lieu thereof as per the Company’s policy. The Company records a liability for compensated absences in the period in which the employee renders the services that increases this entitlement. The total liability recorded by the Company towards this obligation was Rs.1,101 and Rs.1,130 as of December 31, 2021 and March 31, 2021, respectively.

 

 22 

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

19. Employee stock incentive plans

 

Pursuant to the special resolutions approved by the shareholders in the Annual General Meetings held on September 24, 2001, on July 27, 2005, and on July 27, 2018 respectively, the Company instituted the Dr. Reddy’s Employees Stock Option Scheme, 2002 (the “DRL 2002 Plan”), the Dr. Reddy’s Employees ADR Stock Option Scheme, 2007 (the “DRL 2007 Plan”), and Dr. Reddy’s Employees Stock Option Scheme, 2018 (the “DRL 2018 Plan”) each of which allows for grants of stock options to eligible employees.

 

Grants under Stock Incentive Plans

 

The terms and conditions of the grants made during the nine months ended December 31, 2021 under the above plans were as follows:

 

Particulars  Number of
instruments
   Exercise price   Vesting period  Contractual life
DRL 2002 Plan   71,332   Rs.5.00   1 to 4 years  5 years
DRL 2002 Plan   30,208   Rs.5.00   2 to 3 years  5 years
DRL 2007 Plan   55,884   Rs.5.00   1 to 4 years  5 years
DRL 2007 Plan   5,144   Rs.5,301.00   1 to 4 years  5 years
DRL 2018 Plan   8,700   Rs.5,301.00   1 to 4 years  5 years
DRL 2018 Plan   156   Rs.4,663.00   1 to 4 years  5 years

 

The above grants were made on May 13, 2021 and October 28, 2021.

 

The terms and conditions of the grants made during the nine months ended December 31, 2020 under the above plans were as follows:

 

Particulars  Number of
instruments
   Exercise price   Vesting period  Contractual life
DRL 2002 Plan   92,092   Rs.5.00   1 to 4 years  5 years
DRL 2007 Plan   52,316   Rs.5.00   1 to 4 years  5 years
DRL 2007 Plan   96,080   Rs.3,679.00   1 to 4 years  5 years
DRL 2018 Plan   150,740   Rs.3,679.00   1 to 4 years  5 years

 

The above grants were made on May 19, 2020 and October 27, 2020.

 

The fair value of services received in return for stock options granted to employees is measured by reference to the fair value of stock options granted. The fair value of stock options has been measured using the Black-Scholes-Merton valuation model at the date of the grant.

 

The weighted average inputs used in computing the fair value of such grants were as follows:

 

   October 28, 2021   October 28, 2021   October 28, 2021   May 13, 2021 
Expected volatility   29.20%   28.53%   29.04%   29.38%
Exercise price  Rs.4,663.00   Rs.5.00   Rs.5.00   Rs.5,301.00 
Option life   5.0 Years    2.5 Years    5.0 Years    5.0 Years 
Risk-free interest rate   5.94%   4.86%   5.99%   5.70%
Expected dividends   0.55%   0.55%   0.54%   0.47%
Grant date share price  Rs.4,570.00   Rs.4,570.00   Rs.4,570.00   Rs.5,301.00 

 

   May 13, 2021   October 27,
2020
   May 19, 2020   May 19, 2020 
Expected volatility   30.02%   30.81%   29.12%   30.47%
Exercise price  Rs.5.00   Rs.5.00   Rs.3,679.00   Rs.5.00 
Option life   2.5 Years    2.5 Years    5.0 Years    2.5 Years 
Risk-free interest rate   4.64%   4.36%   5.67%   4.62%
Expected dividends   0.47%   0.49%   0.68%   0.68%
Grant date share price  Rs.5,301.00   Rs.5,099.00   Rs.3,700.00   Rs.3,700.00 

 

 23 

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

Employee stock incentive plans (continued)

 

Share-based payment expense

 

   For the nine months
ended December 31,
   For the three months
ended December 31,
 
   2021   2020   2021   2020 
Equity settled share-based payment expense(1)  Rs.451   Rs.455   Rs.161   Rs.151 
Cash settled share-based payment expense(2)   144    152    42    29 
   Rs.595   Rs.607   Rs.203   Rs.180 

 

(1)As of December 31, 2021 and 2020, there was Rs.862 and Rs.799, respectively, of total unrecognized compensation cost related to unvested stock options. This cost is expected to be recognized over a weighted-average period of 1.95 years and 2.03 years, respectively.

 

(2)Certain of the Company’s employees are eligible to receive share based payment awards that are settled in cash. These awards would vest only upon satisfaction of certain service conditions which range from 1 to 4 years. These awards entitle the employees to a cash payment on the vesting date. The amount of the cash payment is determined based on the price of the Company’s ADSs at the time of vesting. As of December 31, 2021 and 2020, there was Rs.149 and Rs.184, respectively, of total unrecognized compensation cost related to unvested awards. This cost is expected to be recognized over a weighted-average period of 1.90 years and 1.98 years, respectively. This scheme does not involve dealing in or subscribing to or purchasing securities of the Company, directly or indirectly.

 

20. Related parties

 

The Company has entered into transactions with the following related parties:

 

·Green Park Hotel and Resorts Limited for hotel services;
·Green Park Hospitality Services Private Limited for catering and other services;
·Dr. Reddy’s Foundation towards contributions for social development;
·Kunshan Rotam Reddy Pharmaceuticals Company Limited for sales of goods and for research and development services;
·Pudami Educational Society towards contributions for social development;
·Indus Projects Private Limited for engineering services relating to civil works;
·CERG Advisory Private Limited for professional consulting services;
·Dr. Reddy’s Institute of Life Sciences for research and development services;
·AverQ Inc. for professional consulting services;
·Shravya Publications Private Limited for professional consulting services;
·Samarjita Management Consultancy Private Limited for professional consulting services;
·Cancelled Plans LLP for the sale of scrap materials;
·Araku Originals Private Limited for the purchase of coffee powder;
·DRES Energy Private Limited for the purchase of solar power; and
·Stamlo Industries Limited for hotel services.

 

These are enterprises over which key management personnel have control or significant influence. “Key management personnel” consists of the Company’s Directors and members of the Company’s Management Council. The Company has also entered into cancellable operating lease transactions with key management personnel and close members of their families.

 

Further, the Company contributes to the Dr. Reddy’s Laboratories Gratuity Fund, which maintains the plan assets of the Company’s Gratuity Plan for the benefit of its employees. See Note 18 of these interim financial statements for information on the Gratuity Fund.

 

 24 

 

  

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

20. Related parties (continued)

 

The following is a summary of significant related party transactions:

 

   For the nine months
ended December 31,
   For the three months
ended December 31,
 
   2021   2020   2021   2020 
Research and development services received  Rs.88   Rs.81   Rs.36   Rs.29 
Sale of goods   102    22    89    1 
License fees   57    -    57    - 
Lease rentals received   1    1    -*   -*
Research and development services provided   -    39    -    39 
Lease rentals paid   28    28    10    9 
Catering expenses paid   250    221    90    82 
Hotel expenses paid   14    6    7    2 
Facility management services paid   27    27    9    9 
Purchase of Solar power   90    92    29    24 
Civil works   52    35    7    20 
Professional consultancy services paid   73    8    30    7 
Contributions towards social development   252    174    58    58 
Salaries to relatives of key management personnel Others   10    6    3    1 

 

* Rounded to the nearest million.

 

The Company had the following amounts due from related parties as of the following dates:

 

   As of 
   December 31, 2021   March 31, 2021 
Key management personnel and close members of  their families  Rs.8   Rs.8 
Other related parties   91    72 

 

The Company had the following amounts due to related parties as of the following dates:

 

   As of 
   December 31, 2021   March 31, 2021 
Due to related parties  Rs.15   Rs.93 

 

The following table describes the components of compensation paid or payable to key management personnel for the services rendered during the applicable period:

 

   For the nine months
ended December 31,
   For the three months
ended December 31,
 
   2021   2020   2021   2020 
Salaries and other benefits  Rs.481   Rs.579   Rs.160   Rs.204 
Contributions to defined contribution plans   24    25    8    8 
Commission to directors   282    255    94    85 
Share-based payments expense   169    201    62    80 
   Rs.956   Rs.1060   Rs.324   Rs.377 

 

Some of the key management personnel of the Company are also covered under the Company’s Gratuity Plan along with the other employees of the Company. Proportionate amounts of gratuity accrued under the Company’s Gratuity Plan have not been separately computed or included in the above disclosure.

 

 25 

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

21.  Financial instruments

 

Financial instruments by category

 

The carrying value and fair value of financial instruments as of December 31, 2021 and March 31, 2021 were as follows:

 

   As of December 31, 2021   As of March 31, 2021 
   Total carrying
value
   Total fair value   Total carrying
value
   Total fair value 
Assets:                    
Cash and cash equivalents  Rs.21,976   Rs.21,976   Rs.14,829   Rs.14,829 
Other investments(1)   15,580    15,580    24,702    24,702 
Trade and other receivables   62,507    62,507    49,759    49,759 
Derivative financial assets   1,801    1,801    1,218    1,218 
Other assets(2)   2,323    2,323    2,626    2,626 
Total  Rs.104,187   Rs.104,187   Rs.93,134   Rs.93,134 
Liabilities:                    
Trade and other payables  Rs.24,492   Rs.24,492   Rs.23,744   Rs.23,744 
Derivative financial liabilities   128    128    326    326 
Long-term borrowings   6,833    6,833    7,163    7,163 
Short-term borrowings   21,331    21,331    23,136    23,136 
Bank overdraft   -    -    9    9 
Other liabilities and provisions(3)   24,350    24,350    23,233    23,233 
Total  Rs.77,134   Rs.77,134   Rs.77,611   Rs.77,611 

 

(1)Interest accrued but not due on investments is included in other assets.

 

(2)Other assets that are not financial assets (such as receivables from statutory authorities, export benefit receivables, prepaid expenses, advances paid and certain other receivables) of Rs.12,610 and Rs.12,717 as of December 31, 2021 and March 31, 2021, respectively, are not included.

 

(3)Other liabilities and provisions that are not financial liabilities (such as statutory dues payable, deferred revenue, advances from customers and certain other accruals) of Rs.13,653 and Rs.13,091 as of December 31, 2021 and March 31, 2021, respectively, are not included.

 

Fair value hierarchy

 

Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices).

 

Level 3 - Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).

 

The following table presents the fair value hierarchy of assets and liabilities measured at fair value on a recurring basis as of December 31, 2021:

 

Particulars  Level 1   Level 2   Level 3   Total 
FVTPL - Financial asset - Investments in units of mutual funds  Rs.4,182   Rs.-   Rs.-   Rs.4,182 
FVTPL - Financial asset - Investment in limited liability partnership firm interests   -    -    384    384 
FVTPL - Financial asset - Investments in equity securities   -    -    1    1 
FVTOCI - Financial asset - Investments in equity securities   1,946    -    -    1,946 
Derivative financial instruments – net gain/(loss) on outstanding foreign exchange forward, option and swap contracts and interest rate swap contracts, net(1)   -    1,673    -    1,673 

 

 26 

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

21. Financial instruments (continued)

 

The following table presents the fair value hierarchy of assets and liabilities measured at fair value on a recurring basis as of March 31, 2021:

 

Particulars  Level 1   Level 2   Level 3   Total 
FVTPL - Financial asset - Investments in units of mutual funds  Rs.13,263   Rs.-   Rs.-   Rs.13,263 
FVTPL - Financial asset - Investment in limited liability partnership firm interests   -    -    400    400 
FVTPL - Financial asset - Investments in equity securities   -    -    1    1 
FVTOCI - Financial asset - Investments in equity securities   4,532    -    -    4,532 
Derivative financial instruments – net gain/(loss) on outstanding foreign exchange forward, option and swap contracts and interest rate swap contracts, net(1)   -    892    -    892 
FVTPL- Contingent consideration pursuant to the Business Transfer Agreement with Wockhardt Limited (Refer to Note 24  for details)   -    -    420    420 

 

(1)The Company enters into derivative financial instruments with various counterparties, principally financial institutions and banks. Derivatives valued using valuation techniques with market observable inputs are mainly interest rate swaps, foreign exchange forward option and swap contracts. The most frequently applied valuation techniques include forward pricing, swap models and Black-Scholes-Merton models (for option valuation), using present value calculations. The models incorporate various inputs including foreign exchange forward rates, interest rate curves and forward rate curves.

 

As of December 31, 2021 and March 31, 2021, the changes in counterparty credit risk had no material effect on the hedge effectiveness assessment for derivatives designated in hedge relationships and other financial instruments recognized at fair value.

 

Hedges of foreign currency exchange rate risks

 

The Company is exposed to exchange rate risk which arises from its foreign exchange revenues and expenses, primarily in U.S. dollars, U.K. pounds sterling, Russian roubles, Brazilian reals, Swiss francs, South African rands, Kazakhstan tenges, Romanian new leus, Australian dollars and Euros, and foreign currency debt in U.S. dollars, Russian roubles, South African rands, Mexican pesos, Ukrainian hryvnias and Brazilian reals.

 

The Company uses foreign exchange forward contracts, option contracts and swap contracts (derivative financial instruments) to mitigate its risk of changes in foreign currency exchange rates. The Company also uses non-derivative financial instruments as part of its foreign currency exposure risk mitigation strategy. Non-derivative financial instruments consist of investments in mutual funds, bonds and market linked debentures, commercial papers, equity and debt securities, trade receivables, cash and cash equivalents, loans and borrowings, and trade payables.

 

Details of gain/(loss) recognized in respect of derivative contracts

 

The following table presents details in respect of the gain/(loss) recognized in respect of derivative contracts during the applicable period ended:

 

   For the nine months
ended December 31,
   For the three months
ended December 31,
 
   2021   2020   2021   2020 
Net gain recognized in finance costs in respect of foreign exchange derivative contracts and cross currency interest rate swaps contracts  Rs.635   Rs.2,092   Rs.623   Rs.706 
Net (loss)/gain recognized in equity in respect of hedges of highly probable forecast transactions, net of amounts reclassified from equity and recognized as component of revenue   (88)   976    198    59 
Net gain/(loss) reclassified from equity and recognized as component of revenue upon occurrence of forecasted transaction   45    69    (41)   162 

 

The net carrying amount of the Company’s “hedging reserve” as a component of equity before adjusting for tax impact was a gain of Rs.313 as of December 31, 2021, as compared to a gain of Rs.401 as of March 31, 2021.

 

 27 

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

22.  Contingencies

 

The Company is involved in disputes, lawsuits, claims, governmental and/or regulatory inspections, inquiries, investigations and proceedings (collectively, “Legal Proceedings”), including patent and commercial matters that arise from time to time in the ordinary course of business. Most of the claims involve complex issues. Often, these issues are subject to uncertainties and therefore the probability of a loss, if any, being sustained and an estimate of the amount of any loss is difficult to ascertain. Consequently, for a majority of these claims, it is not possible to make a reasonable estimate of the expected financial effect, if any, that will result from ultimate resolution of the proceedings. This is due to a number of factors, including: the stage of the proceedings (in many cases trial dates have not been set) and the overall length and extent of pre-trial discovery; the entitlement of the parties to an action to appeal a decision; clarity as to theories of liability; damages and governing law; uncertainties in timing of litigation; and the possible need for further legal proceedings to establish the appropriate amount of damages, if any. In these cases, the Company discloses information with respect to the nature and facts of the case. The Company also believes that disclosure of the amount sought by plaintiffs, if that is known, would not be meaningful with respect to those legal proceedings.

 

Although there can be no assurance regarding the outcome of any of the Legal Proceedings referred to in this Note, the Company does not expect them to have a materially adverse effect on its financial position, as it believes that the likelihood of loss in excess of amounts accrued (if any) is not probable. However, if one or more of such Legal Proceedings were to result in judgments against the Company, such judgments could be material to its results of operations in a given period.

 

Note 33 to the Consolidated Financial Statements in the Company’s Annual Report on Form 20-F for the year ended March 31, 2021 contains a summary of significant Legal Proceedings. The following is a summary, as of the date of this quarterly report, of significant developments in those proceedings as well as any new significant proceedings commenced since the date such Annual Report on Form 20-F was filed.

 

Product and patent related matters

 

Launch of product

 

On June 14, 2018, the U.S. FDA granted the Company final approval for buprenorphine and naloxone sublingual film, 2 mg/0.5 mg, 4 mg/1 mg, 8 mg/2 mg, and 12 mg/3 mg dosages, a therapeutic equivalent generic version of Suboxone® sublingual film. The U.S. FDA approval came after the conclusion of litigation in the U.S. District Court for the District of Delaware (the “Delaware District Court”), where the Delaware District Court held that patents covering Suboxone® sublingual film would not be infringed by the Company’s commercial launch of its generic sublingual film product. In light of the favorable decision from the Delaware District Court, the Company launched its generic sublingual film product in the United States immediately following the U.S. FDA approval on June 14, 2018. On July 12, 2019, the U.S. Court of Appeals for the Federal Circuit (“the Court of Appeals”) affirmed the Delaware District Court’s ruling that the Company’s generic version of Suboxone® sublingual films did not infringe the two remaining patents at issue in the Delaware District Court’s case (U.S. patent numbers 8,603,514 and 8,015,150).

 

After the Delaware District Court’s decision, Indivior filed a second lawsuit against the Company alleging infringement of three additional U.S. patents (numbers 9,687,454, 9,855,221 and 9,931,305) in the U.S. District Court for the District of New Jersey (the “New Jersey District Court”), styled Indivior Inc. et al. v. Dr. Reddy’s Laboratories S.A., Civil Action No. 2:17-cv-07111 (D.N.J.). Following the launch, on June 15, 2018, Indivior filed an emergency application for a temporary restraining order and preliminary injunction against the Company in the New Jersey District Court. Indivior’s motion alleged that the Company’s generic sublingual film product infringed one of three U.S. patents (number 9,931,305) at issue in the New Jersey District Court. Pending a hearing and decision on the injunction application, the New Jersey District Court initially issued a temporary restraining order against the Company with respect to further sales, offer for sales, and imports of its generic sublingual film product in the United States. Subsequently, on July 14, 2018, the New Jersey District Court granted a preliminary injunction in favor of Indivior. Under the order, Indivior was required to and did post a bond of U.S. $72 to pay the costs and damages sustained by the Company if it was found to be wrongfully enjoined. The Company immediately appealed the decision, and the Court of Appeals agreed to expedite the appeal.

 

On November 20, 2018, the Court of Appeals issued a decision vacating the preliminary injunction. The Court of Appeals denied Indivior’s petition for rehearing on February 4, 2019.

 

Indivior subsequently filed two emergency motions in the Court of Appeals to stay issuance of the mandate and to keep the preliminary injunction in place, which the Court of Appeals denied. Indivior then petitioned the U.S. Supreme Court to stay issuance of the mandate.

 

Indivior’s petition was denied by the Chief Justice of the U.S. Supreme Court on February 19, 2019, and the mandate was issued on the same day. The Company resumed sales of its generic sublingual film product after the mandate was issued.

 

 28 

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

22. Contingencies (continued)

 

On February 19, 2019, the New Jersey District Court entered a stipulated order of dismissal of Indivior’s claims under U.S. patent number 9,855,221. On November 5, 2019, the New Jersey District Court issued its claim construction decision construing certain terms in U.S. patent numbers 9,931,305 and 9,687,454. After such claim construction decision, on January 8, 2020, the New Jersey District Court entered a stipulated order that the Company’s generic sublingual film product does not infringe the asserted claims in U.S. patent number 9,931,305. In the stipulated order, Indivior reserved the ability to appeal the New Jersey District Court’s claim construction order. The Company filed a motion requesting that the New Jersey District Court enter partial final judgment in the Company’s favor relating to the allegations of infringement of U.S. patent number 9,931,305, which the District Court denied without prejudice on August 24, 2020, pending resolution of Indivior’s allegations relating to U.S. patent number 9,687,454.

 

On November 11, 2019, a Magistrate Judge in the District of New Jersey granted the Company leave to file a counterclaim against Indivior that alleges that Indivior engaged in anticompetitive conduct by making false or misleading statements to the New Jersey District Court during the preliminary injunction proceedings in violation of federal antitrust laws. Indivior appealed the Magistrate Judge’s ruling to the District Court Judge and, on August 24, 2020, the District Court Judge denied Indivior’s appeal. The District Court granted Indivior’s motion to bifurcate the patent claims and the antitrust claims into two separate trials. Fact discovery closed on January 29, 2021 and expert discovery closed on September 24, 2021. Indivior has filed a motion for summary judgment that it is immune from antitrust liability under the Noerr-Pennington doctrine and that the Company is not entitled to seek damages in excess of the injunction bond. The Company has filed a motion for summary judgment that Indivior’s remaining claims for patent infringement are barred by the doctrines of issue preclusion, claim preclusion, and prosecution laches and that Indivior’s damages claim should be limited to a reasonable royalty. Summary judgment briefing closed on January 12, 2022. No trial date has been set.

 

In addition to the District Court proceeding, on November 13, 2018, the Company filed two petitions for inter-partes review challenging the validity of certain claims of U.S. patent number 9,687,454 before the Patent Trial and Appeal Board (“PTAB”). On June 13, 2019, the PTAB agreed to institute inter-partes review on one of the two petitions filed by the Company. The PTAB heard oral argument in the pending inter-partes review challenge on March 3, 2020.

 

On June 2, 2020, the PTAB issued a final written decision in the Company’s favor finding that the Company had demonstrated that claims 1–5, 7, and 9–14 of U.S. Patent No. 9,687,454 (“the ’454 patent”) were unpatentable. The PTAB upheld the validity of only one of the challenged claims, claim 8. Additionally, claim 6 was not at issue in the inter-partes review and therefore not subject to the final written decision. Claims 6 and 8 remain asserted against the Company in the New Jersey District Court litigation. Indivior filed a timely notice of appeal of the PTAB’s Final Written Decision (“ FWD”) for claims 1-5, 7, and 9-14, and the Company cross appealed the PTAB’s FWD on claim 8. In the PTAB appeal, Indivior submitted its principal appeal brief on December 9, 2020. Indivior did not challenge the Board’s decision on claims 5 and 12 in its appeal brief. The Company submitted its opening and response brief on February 18, 2021 and Indivior submitted its response and reply brief on March 30, 2021. The Company’s reply brief was submitted on April 20, 2021. Oral argument before the U.S. court of appeals for the Federal Circuit occurred on September 1, 2021. On November 24, 2021, a panel of the Federal Circuit issued a decision affirming the PTAB’s decision in all respects. On January 26, 2022, Indivior filed a petition with the Federal Circuit seeking rehearing of the panel’s decision. If the Federal Circuit’s decision takes effect, the only remaining valid claims of the ’454 patent to be litigated before the district court will be claims 6 and 8.

 

The Company intends to vigorously defend its positions and pursue a claim for damages caused by the preliminary injunction. Any liability that may arise on account of this litigation is unascertainable. Accordingly, no provision was made in these interim financial statements of the Company.

 

Matters relating to National Pharmaceutical Pricing Authority

 

Litigation relating to Cardiovascular and Anti-diabetic formulations Norfloxacin, India litigation

 

As previously disclosed, the Company is involved in legal proceedings with India’s National Pharmaceutical Pricing Authority regarding allegations on the maximum prices permissible for “specified product” Norfloxacin under applicable price control regulations. A writ petition on this matter filed by the Company is pending with the Delhi High Court, and the matter has been adjourned to February 22, 2022 for hearing.

 

Based on its best estimate, the Company has recorded a provision for potential liability for sale proceeds in excess of the notified selling prices, including the interest thereon, and believes that the likelihood of any further liability that may arise on account of penalties pursuant to this litigation is not probable.

 

 29 

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

22. Contingencies (continued)

 

Litigation relating to Cardiovascular and Anti-diabetic formulations

 

As previously disclosed, the Company is involved in legal proceedings with India’s National Pharmaceutical Pricing Authority regarding allegations that the Company violated the maximum prices permissible for various formulations in the cardiovascular and anti-diabetic therapeutic areas under applicable price control regulations. A writ petition on this matter filed by the Company is pending with the Delhi High Court, and the matter has been adjourned to February 25, 2022 for hearing.

 

Based on its best estimate, the Company has recorded a provision of Rs.342 under “Selling, general and administrative expenses” as a potential liability for sale proceeds in excess of the notified selling prices, including the interest thereon, and believes that the likelihood of any further liability that may arise on account of penalties pursuant to this litigation is not probable.

 

However, if the Company is unsuccessful in such litigation, it will be required to remit the sale proceeds in excess of the notified selling prices to the Government of India with interest and could potentially include penalties, which amounts are not readily ascertainable.

 

Environmental matters

 

Land pollution

 

As previously disclosed, the Company is involved in legal proceedings with the Telangana State Pollution Control Board (“TSPCB”), India, regarding collection of Corpus Fund of 0.5 % as remediation fee on the previous year turnover as per certain Operational Guidelines of the TSPCB and on the basis of the judgment of the National Green Tribunal (“NGT”), Chennai, India dated October 24, 2017 for the fiscal years 2015-2016 to 2018-2019 received by the CTO-1, CTO-2 and CTO-3 facilities of the Company.

 

On November 22, 2019, The Hon’ble High Court of Judicature at Hyderabad, India issued an Interim Order which stayed the TSPCB’s demand on the condition that the Company deposit Rs.60 as the remediation fee for the fiscal year 2018-2019. The deposit of Rs.60 was made and the Interim Order is continuing. The Hon’ble High Court has disposed off the matter vide its Order dated December 9, 2021 and has granted liberty to the Company to approach the NGT, Chennai.

 

The Company believes that any additional liability that might arise in this regard is not probable. Accordingly, no provision relating to these claims has been made in these interim financial statements.

 

Other product and patent related matters

 

Ranitidine Recall and Litigation

 

On October 1, 2019, the Company initiated a voluntary nationwide recall (at the retail level for over-the-counter products and at the consumer level for prescription products) of its ranitidine medications sold in the United States due to the presence of N-Nitrosodimethylamine (“NDMA”) above levels established by the U.S. FDA. On November 1, 2019, the U.S. FDA issued a statement indicating that it had found levels of NDMA in ranitidine from its testing generally that were “similar to the levels you would expect to be exposed to if you ate common foods like grilled or smoked meats.” See https://www.fda.gov/news-events/press-announcements/statement-new-testing-results-including-low-levels-impurities-ranitidine-drugs. On April 1, 2020, the U.S. FDA issued a press release announcing that it was requesting manufacturers to withdraw all prescription and over-the-counter ranitidine drugs from the market immediately.

 

Individual federal court personal injury lawsuits, as well as various class actions, have been transferred to the In re Zantac (Ranitidine) Products Liability Litigation Multidistrict Litigation in the Southern District of Florida, MDL-2924 (“MDL-2924”). The Company and/or one or more of its U.S. subsidiaries have been named as a defendant in over 250 lawsuits pending in the MDL-2924. A census registry established in the MDL-2924 includes tens of thousands of claimants who have not filed complaints but are presenting claims for consideration in the MDL-2924 against the many pharmaceutical manufacturers, distributors and retailers which are defendants in the MDL-2924. The MDL-2924 also involves a proposed nationwide consumer class action and a proposed nationwide class action for medical monitoring. A third-party payor class action was dismissed without prejudice and has been appealed by plaintiffs to the U.S. Court of Appeals for the Eleventh Circuit.

 

 30 

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

22. Contingencies (continued)

 

Ranitidine Recall and Litigation (continued)

 

On December 31, 2020, the MDL-2924 Court ruled on multiple motions to dismiss in the MDL-2924 and granted the generic manufacturers’ (the Company is a generic manufacturer) motion to dismiss based on federal preemption. The plaintiffs’ failure-to-warn and design defect claims against the Company were dismissed with prejudice, but the Court permitted plaintiffs to attempt to replead several claims/theories. Plaintiffs then filed their amended complaints and the defendants, including the Company, filed motions to dismiss seeking dismissal of all claims against them on March 24, 2021. On July 8, 2021, the Court dismissed the entirety of plaintiffs’ claims against the Company and other generic manufacturers with prejudice. This decision has been appealed by plaintiffs to the U.S. Court of Appeals for the Eleventh Circuit.

 

There are several ranitidine-related actions currently pending against the Company in state courts. The New Mexico State Attorney General filed suit against the Company’s U.S. subsidiary, and multiple other manufacturers and retailers. The State of New Mexico asserted claims of statutory and common law public nuisance and negligence claims against the Company. The Company joined in an effort to transfer the case from the Santa Fe County Court to the MDL-2924, but the case was remanded by the MDL-2924 Court to the Santa Fe County Court. Plaintiff filed an amended complaint on April 16, 2021, and a briefing schedule has been entered pursuant to which the defendants will move to dismiss the case.

 

In November 2020, the City of Baltimore filed a similar action against the Company’s U.S. subsidiary, and multiple other manufacturers and retailers. The City of Baltimore asserts public nuisance and negligence claims against the Company. The City of Baltimore action also was transferred to the MDL-2924 and subsequently was remanded to the Circuit Court of Maryland by the MDL-2924 Court. The City of Baltimore intends to file an amended complaint and the defendants will then move to dismiss the case.

 

In January 2021, the Company was served in a Proposition 65 case filed by the Center for Environmental Health in the Superior Court of Alameda County, California. The plaintiff purports to bring the case on behalf of the people of California and alleges that the Company violated Proposition 65, a California law requiring manufacturers to disclose the presence of carcinogens in consumer products. The Company and other defendants have filed demurrers (motions to dismiss) in the case, and on May 7, 2021 the Court granted all such demurrers without leave to amend the pleadings. The People of California have the right to appeal this decision.

 

In September 2021, two individual plaintiffs filed actions against the Company and other brand and generic manufacturers in Illinois State Court, alleging, among other things, failure to warn, design defect and negligence. Plaintiffs’ Motion to Consolidate is fully briefed and awaiting decision, with discovery proceeding thereafter.

 

In addition in October 2021, two individual plaintiffs filed actions against the Company and other brand and generic manufacturers in Pennsylvania State Court, alleging, among other things, failure to warn, design defect and negligence. The defendants intend to move to dismiss these cases.

 

Note on Above Complaints and Claims

 

The Company believes that all of the aforesaid complaints and asserted claims are without merit and it denies any wrongdoing and intends to vigorously defend itself against the allegations. Any liability that may arise on account of these claims is unascertainable at this time. Accordingly, no provision was made in these interim financial statements of the Company.

 

United States Antitrust Multi-District Litigation

 

As previously disclosed, the Attorneys General for forty-nine U.S. States, plus the District of Columbia and the Commonwealth of Puerto Rico, filed a lawsuit asserting claims against a number of pharmaceutical companies, including the Company’s subsidiary, Dr. Reddy’s Laboratories, Inc., alleging conspiracies to fix prices and to allocate bids and customers, and such case was subsequently consolidated with certain private plaintiff class actions in a multi-district litigation (“MDL”) in the United States District Court for the Eastern District of Pennsylvania, MDL 2724, In re Generic Pharmaceuticals Antitrust Pricing Litigation (the “MDL-2724”). Some updates on the MDL-2724 litigation are set forth below.

 

 31 

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

22. Contingencies (continued)

 

Antitrust Complaint Filed by Westchester County, New York

 

On September 21, 2021, a Complaint was filed in the Supreme Court of the State of New York, Westchester County, by Westchester County against the Company and 57 other defendants. The case has been removed to the United States District Court for the Southern District of New York and is in the process of being transferred to, and consolidated with, the MDL-2724 litigation. The complaint alleges an overarching conspiracy to fix prices and allocate markets for approximately 294 generic drugs. Of the 294 drugs, the Company is specifically named with respect to 3 drugs: Divalproex, Meprobamate, and Zoledronic Acid. The complaint alleges violations of Sections 1 and 3 of the Sherman Act, Sections 4 and 16 of the Clayton Act, and the Antitrust Statutes of New York, as well as Unjust Enrichment claims under the laws of New York. The complaint seeks injunctive relief, recovery of treble damages, and attorney’s fees and costs against all defendants on a joint and several basis. The Company denies any wrongdoing and intends to vigorously defend against these claims.

 

Pennsylvania Court of Common Pleas Praecipe For a Writ of Summons Filed by 21 End Payor Entities consisting of AmeriHealth entities and other health insurance companies

 

On October 21, 2021, a Praecipe For a Writ of Summons for a tort action was filed in the Pennsylvania Court of Common Pleas of Philadelphia County, First Judicial District of Pennsylvania, Civil Trial Division, by 21 AmeriHealth entities and other health insurance companies, against the Company’s U.S. subsidiary and 74 other defendants (consisting of 50 other pharmaceutical companies and 24 individuals). Only a Praecipe of Writ of Summons has been filed. No complaint has been filed and, therefore, the potential claims have not been asserted or delineated in any manner, including what drugs any such claims may relate to. A complaint may, at some point, be filed encompassing the claims asserted by the End Payor Plaintiff class actions in the MDL-2724 actions. It is anticipated that this action will be placed in Deferred Status Pending Further Developments in the related MDL-2724 case. Because no Complaint has been filed setting forth any claims, and because it is expected that the action will be placed into Deferred Status, no response is required by the Company’s subsidiary at this time.

 

Note on Above Complaints and Claims

 

The Company believes that all of the aforesaid complaints and asserted claims are without merit and intends to vigorously defend itself against the allegations. Also, any liability that may arise on account of these claims is unascertainable. Accordingly, no provision was made in these interim financial statements of the Company.

 

Veraring Litigation

 

A Complaint was filed on November 15, 2021 in the Supreme Court of the State of New York, County of New York (trial court level) by Teva Pharmaceutical Industries Ltd. (“Teva”) against Dr. Reddy's Laboratories, S.A. (656499/2021). This Complaint was subsequently amended by Teva on January 26, 2022.  In its Amended Complaint, Teva alleges that the Company breached the Supply Agreements between the parties, failed to pay carrying costs, and breached the implied covenant of good faith and fair dealing, seeking monetary damages and all other remedies available under law. On January 6, 2022, the Company asserted counterclaims against Teva, asserting that Teva breached its contractual obligations to the Company by, among other things, failing to adhere to cGMP and producing product unfit for human use, seeking monetary damages and all other remedies available under law.

 

The Company believes that it is too early to speculate as to outcome, either with respect to liability or damages, and intends to vigorously defend against the claims made by Teva, while zealously prosecuting its affirmative counterclaims.

 

 32 

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

22. Contingencies (continued)

 

Other matters

 

Internal Investigation

 

The Company has commenced a detailed investigation into an anonymous complaint received in September 2020. The complaint alleges that healthcare professionals in Ukraine and potentially in other countries were provided with improper payments by or on behalf of the Company in violation of U.S. anti-corruption laws, specifically the U.S. Foreign Corrupt Practices Act. A U.S. law firm is conducting the investigation at the instruction of a committee of the Company’s Board of Directors. The Company has disclosed the matter to the U.S. Department of Justice (“DOJ”), Securities and Exchange Commission (“SEC”) and Securities Exchange Board of India. On July 6, 2021 the Company received a subpoena from the SEC for the production of documents pertaining to certain CIS geographies, and the Company has been responding to the same.

 

During the three months ended September 30, 2021, the Company shared the report with respect to one jurisdiction with the SEC/DOJ. In the current quarter the Company finalized the reports with respect to certain other countries which will be presented to the SEC/DOJ in due course. The investigation is ongoing, and the Company is complying with its listing obligations as it relates to updating the regulatory agencies. While the findings from the aforesaid investigations could result in government enforcement actions against the Company in the United States and/or foreign jurisdictions, which can lead to civil and criminal sanctions under relevant laws, the outcome are not reasonably ascertainable at this time. The Company is also in the process of reviewing its Compliance Program including controls in relation to compliance and implement appropriate enhancements, if any.

 

Civil Investigative Demand from the Office of the Attorney General, State of Texas

 

On or about November 10, 2014, Dr. Reddy’s Laboratories, Inc., one of the Company’s subsidiaries in the United States, received a Civil Investigative Demand (“CID”) from the Office of the Attorney General, State of Texas (the “Texas AG”) requesting certain information, documents and data regarding sales and price reporting in the U.S. marketplace of certain products for the period of time between January 1, 1995 and the date of the CID. On or about June 23, 2021, the Texas AG contacted the Company’s counsel to request additional information related to the Texas AG’s investigation for the time-period of October 1, 2003 through February 29, 2012. The Company continues to cooperate with this investigation.

 

23. Merger of Dr. Reddy’s Holdings Limited into Dr. Reddy’s Laboratories Limited

 

The Board of Directors, at its meeting held on July 29, 2019, has approved the amalgamation (the “Scheme”) of Dr. Reddy’s Holdings Limited (“DRHL”), an entity held by the Promoter Group, which held 24.88% of Dr. Reddy’s Laboratories Limited (the “Company”). into the Company. This is subject to the approval of shareholders, stock exchanges, the National Company Law Tribunal (“NCLT”) and other relevant regulators.

 

The Scheme will lead to simplification of the shareholding structure and reduction of shareholding tiers.

 

The Promoter Group cumulatively would continue to hold the same number of shares in the Company, pre and post the amalgamation. All costs, charges and expenses relating to the Scheme will be borne out of the surplus assets of DRHL. Further, any expense, if exceeding the surplus assets of DRHL, will be borne directly by the Promoters.

 

The Scheme also provides that the Promoters of the Company will jointly and severally indemnify, defend and hold harmless the Company, its directors, employees, officers, representatives, or any other person authorized by the Company (excluding the Promoters) for any liability, claim, or demand, which may devolve upon the Company on account of this amalgamation.

 

During the fiscal year ended March 31, 2020, the Scheme was approved by the board of directors, members and unsecured creditors of the Company. The no-observation letters from the BSE Limited and National Stock Exchange of India Limited were received on the basis of no comments received from Securities and Exchange Board of India (“SEBI”). The petition for approval of the said Scheme was filed with the Hon’ble NCLT, Hyderabad Bench.

 

The hearings on the petition took place on April 20, 2021, the Hon’ble NCLT had reserved the issuance of an order pending its review and further analysis. Thereafter, on account of re-constitution of the Hon’ble Bench the matter has been posted again for hearing on February 9, 2022.

 

 33 

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

24. Business Transfer Agreement with Wockhardt Limited

 

In February 2020, the Company entered into a Business Transfer Agreement (“BTA”) with Wockhardt Limited (“Wockhardt”) to acquire select divisions of its branded generics business in India and the territories of Nepal, Sri Lanka, Bhutan and Maldives for a consideration of Rs.18,500.

 

The business consists of a portfolio of 62 brands in multiple therapy areas, such as respiratory, neurology, venous malformations, dermatology, gastroenterology, pain and vaccines. This entire portfolio was to be transferred to the Company, along with related sales and marketing teams, the manufacturing plant located in Baddi, Himachal Pradesh and all plant employees (together the “Business Undertaking”). The transaction involved 2,051 employees engaged in operations of the acquired Business Undertaking.

 

As of March 31, 2020, the acquisition of this Business Undertaking was subject to certain closing conditions, such as approval from shareholders and lenders of Wockhardt and other requisite approvals under applicable statutes. Hence, the transaction was not accounted for in the fiscal year ended March 31, 2020.

 

Due to the COVID-19 pandemic and the consequent government restrictions, there was a reduction in the revenue from the sales of the products forming part of the Business Undertaking during March and April 2020. Accordingly, through an amendment to the BTA, the Company and Wockhardt agreed that the consideration would be up to Rs.18,500, to be paid as per the following terms:

 

a)an amount of Rs.14,830 to be paid on the date of closing;

 

b)an amount of Rs.670 to be deposited in an escrow account which shall be released subject to adjustments for, inter alia, net working capital, employee liabilities and certain other contractual and statutory liabilities;

 

c)an amount of Rs.3,000 (the “Holdback Amount”) which shall be released as follows:

 

·If the revenue from sales of the products forming part of the Business Undertaking during the twelve (12) months post-closing exceeds Rs.4,800, the Company will be required to pay to Wockhardt an amount equal to two (2) times the amount by which the revenue exceeds Rs.4,800, subject to the maximum of the Holdback Amount.

 

The acquisition is in line with the Company's strategic focus on India and has paved a path for accelerated growth and leadership in the domestic Indian market. The Company believes that the acquired Business Undertaking offers to strengthen the Company’s pharmaceutical portfolio and products in the Indian market.

 

The transaction was completed on June 10, 2020.

 

The Company has accounted for the transaction under IFRS 3, “Business Combinations”.

 

As of June 30, 2020, the purchase price allocation was preliminary.

 

During the three months ended September 30, 2020, the Company completed the purchase price allocation. Tabulated below are the fair values of the assets acquired, including goodwill, and liabilities assumed on the acquisition date:

 

Particulars  Amount 
Cash  Rs.14,990 
Payment through Escrow account   564 
Contingent consideration (Holdback Amount)   561 
Total consideration  Rs.16,115 
Assets acquired     
Goodwill   Rs.530 
Property, plant and equipment   373 
Product related intangibles   14,888 
Inventories   466 
Other assets   245 
Liabilities assumed     
Employee benefits (Gratuity-Rs.70 and Compensated absences- Rs.75)   (145)
Refund liability   (242)
Total net assets  Rs.16,115 

 

The total goodwill of Rs.530 consists largely of the synergies and economies of scale expected from the acquired business, together with the value of the workforce acquired and has been assigned to the Company’s Global Generics segment. The entire amount of goodwill is not deductible for tax purposes.

 

 34 

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

24. Business Transfer Agreement with Wockhardt Limited (continued)

 

Acquisition related costs amounted to Rs.60 and were excluded from the consideration transferred and were recognized as expense under “Selling, general and administrative expenses” in the consolidated income statements for the fiscal year ended March 31, 2021. The amount of revenues included in the consolidated income statements for the nine months ended December 31, 2020 and for the fiscal year ended March 31, 2021 pertaining to the acquired business since June 10, 2020 was Rs.3,026 and Rs.3,887, respectively.

 

The fair value of the contingent consideration of Rs.561 was estimated by applying the income approach. The fair value measurement is based on significant inputs that are not observable in the market, which IFRS 13 refers to as Level 3 inputs. The significant unobservable inputs in the valuation is the estimated sales forecast. During the three months ended March 31, 2021, the Company, after taking into account the revenue of the products until twelve months post-closing, re-measured the contingent consideration to Rs.420. Further, after considering the actual revenues for the twelve months period post-closing and corresponding changes, during the three months ended June 30, 2021, the Company re-measured the contingent consideration to Rs.330.

 

During the three months ended June 30, 2021, the parties entered into an amendment agreement for the transfer of Goods and Services Tax credit (“GST credit”) from Wockhardt to the Company, so that the Company can avail and utilize the GST credit immediately upon the transfer.

 

25. Impact of COVID-19

 

The Company considered the uncertainty relating to the COVID-19 pandemic in assessing the recoverability of receivables, goodwill, intangible assets, investments and other assets. For this purpose, the Company considered internal and external sources of information up to the date of approval of these interim financial statements. Based on its judgments, estimates and assumptions, including sensitivity analysis, the Company expects to fully recover the carrying amount of receivables, goodwill, intangible assets, investments and other assets.

 

The Company will continue to closely monitor any material changes to future economic conditions.

 

26. The Code on Social Security, 2020

 

India’s Code on Social Security, 2020, which aims to consolidate, codify and revise certain existing social security laws, received Presidential assent in September 2020 and has been published in the Gazette of India. However, the related final rules have not yet been issued and the date on which this Code will come into effect has not been announced. The Company will assess the impact of this Code and the rules thereunder when they come into effect.

 

27. Update on the Inspection of facilities from the U.S. FDA

 

Tabulated below are the details of the recently open U.S. FDA inspections carried out at facilities of the Company:

 

Month and year   Unit   Details of observations
March 2021   API Middleburgh Plant, New York, United States   Three observations were noted. The Company responded to the observations and awaiting for the Establishment Inspection Report (“EIR”).
April 2021   Integrated Product Development Organization (IPDO), Bachupally, Hyderabad, India  

No observations noted.

EIR/Remote Record Review Summary was received on August 10, 2021 and the U.S. FDA concluded that this remote record review is closed.

October 2021   Formulations manufacturing facilities {Vizag SEZ plant 1 (FTO VII) and Vizag SEZ plant 2 (FTO IX)} at Duvvada, Visakhapatnam, India   Eight observations were noted. The Company responded to the observations and is awaiting the EIR.

 

 35 

 

  

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

28. Subsequent events

 

None.

 

 36 

 

 

ITEM 2. OPERATING AND FINANCIAL REVIEW, TREND INFORMATION

 

The following discussion and analysis should be read in conjunction with the audited consolidated financial statements, the related notes and the “Operating and Financial Review and Prospects” section included in our Annual Report on Form 20-F for the fiscal year ended March 31, 2021, and the interim financial statements included in our report on Form 6-K for the three months ended June 30, 2021 and the six months ended September 30, 2021, all of which are on file with the SEC, as well as the unaudited condensed consolidated interim financial statements and related notes contained in this report on Form 6-K.

 

This discussion contains forward-looking statements that involve risks and uncertainties. When used in this discussion, the words “anticipate”, “believe”, “estimate”, “intend”, “will” and “expect” and other similar expressions as they relate to us or our business are intended to identify such forward-looking statements. Actual results, performances or achievements could differ materially from those expressed or implied in such forward-looking statements. Factors that could cause or contribute to such differences include those described under the heading “Risk Factors” in our Form 20-F. Readers are cautioned not to place reliance on these forward-looking statements which reflect management’s analysis and assumptions only as of the date hereof. We undertake no obligation to publicly update or revise the forward-looking statements, whether as a result of new information, future events, or otherwise.

 

Section A:

 

Three months ended December 31, 2021 compared to the three months ended December 31, 2020

 

The following table sets forth, for the periods indicated, financial data along with respective percentages to total revenues and the increase (or decrease) by item as a percentage of the amount over the comparable period in the previous year.

   For the three months ended December 31, 
   2021   2020       
   Rs. in
millions
   % of
Revenues
   Rs. in
millions
   % of
Revenues
   Increase/
(Decrease)
 
Revenues  Rs.53,197    100.0%  Rs.49,296    100.0%   8%
Gross profit   28,612    53.8%   26,538    53.8%   8%
Selling, general and administrative expenses   15,411    29.0%   14,387    29.2%   7%
Research and development expenses   4,159    7.8%   4,108    8.3%   1%
Impairment of non-current assets   47    0.1%   5,972    12.1%   (99%)
Other income, net   (240)   (0.5%)   (128)   (0.3%)   88%
Results from operating activities   9,235    17.4%   2,199    4.5%   320%
Finance income, net   289    0.5%   493    1.0%   (41%)
Share of profit of equity accounted investees, net of  tax   185    0.3%   151    0.3%   23%
Profit before tax   9,709    18.3%   2,843    5.8%   242%
Tax expense, net   2,644    5.0%   2,645    5.4%   0%
Profit for the period  Rs.7,065    13.3%  Rs.198    0.4%   3468%

 

Revenues

 

Our overall consolidated revenues were Rs.53,197 million for the three months ended December 31, 2021, an increase of 8% as compared to Rs.49,296 million for the three months ended December 31, 2020.

 

The following table sets forth, for the periods indicated, our consolidated revenues by segment:

 

   For the three months ended December 31, 
   2021     2020       
   Rs. in
millions
   Revenues %
of Total
   Rs. in
millions
   Revenues %
of Total
   Increase/
(Decrease)
 
Global Generics  Rs.44,508    84%  Rs.40,751    83%   9%
Pharmaceutical Services and Active Ingredients (PSAI)   7,271    14%   7,009    14%   4%
Proprietary Products   129    0%   124    0%   4%
Others   1,289    2%   1,412    3%   (9%)
Total  Rs.53,197    100%  Rs.49,296    100%   8%

 

 37 

 

 

Segment Analysis

 

Global Generics

 

Revenues from our Global Generics segment were Rs.44,508 million for the three months ended December 31, 2021, an increase of 9% as compared to Rs.40,751 million for the three months ended December 31, 2020. The revenue increase was in three of the four business geographies of this segment: North America (the United States and Canada), India, and “Emerging Markets” (which is comprised of Russia, other countries of the former Soviet Union, Romania and certain other countries from our “Rest of the World” markets, including South Africa, China, Brazil and Australia).

 

After taking into account the impact of exchange rate fluctuations of the Indian rupee against multiple currencies in the markets in which we operate, the foregoing increase in revenues of this segment was attributable to the following factors:

 

·an increase of approximately 13% resulting from new products launched during the period;

 

·an increase of approximately 5% resulting from a net increase in the sales volumes of existing products in this segment; and

 

·the foregoing was partially offset by a decrease of approximately 9% resulting from the net impact of changes in sales prices of the products in this segment.

 

North America (the United States and Canada): Our Global Generics segment’s revenues from North America (the United States and Canada) were Rs.18,645 million for the three months ended December 31, 2021, an increase of 7% as compared to Rs.17,394 million for the three months ended December 31, 2020. In U.S. dollar absolute currency terms (i.e., U.S. dollars without taking into account the effect of currency exchange rates), such revenues increased by 6% in the three months ended December 31, 2021 as compared to the three months ended December 31, 2020.

 

This increase in revenues was largely attributable to new product launches between January 1, 2021 and December 31, 2021 (such as icosapent ethyl capsules and ertapenem injection) and an increase in volumes of certain of our existing products, which was partly offset by price erosion in certain of our existing products.

 

During the three months ended December 31, 2021, we launched four new products in the United States, which were carmustine injection, ephedrine sulphate injection, valsartan tablets and venlafaxine extended release tablets.

 

During the three months ended December 31, 2021, we made one new ANDA filings with the U.S. FDA. As of December 31, 2021, we had 91 filings pending approval with the U.S. FDA, which includes 88 ANDAs and three NDAs filed under section 505(b)(2). Out of these 91 ANDA filings, 45 are Paragraph IV filings and we believe we are the first to file with respect to 24 of these filings.

 

Europe: Our Global Generics segment’s revenues from Europe are primarily derived from Germany, the United Kingdom, Italy, France and Spain. Such revenues were Rs.4,058 million for the three months ended December 31, 2021, a decrease of 2% as compared to Rs.4,143 million for the three months ended December 31, 2020. This decrease was primarily on account of adverse forex rates. Price erosion in certain of our existing products, was offset by new products launched between January 1, 2021 and December 31, 2021 and an increase in the sales volumes of some of our existing products.

 

India: Our Global Generics segment’s revenues from India for the three months ended December 31, 2021 were Rs.10,266 million, an increase of 7% as compared to Rs.9,591 million for the three months ended December 31, 2020. This increase was attributable to an increase in sales prices of some of our existing products and revenues from new products launched between January 1, 2021 and December 31, 2021, which was partially offset by a decrease in sales volumes of some of our existing products. During the three months ended December 31, 2021, we launched four new brands in India.

 

According to IQVIA in its report for the three months ended December 31, 2021, our secondary sales in India grew by 9.3% during such period, as compared to the India pharmaceutical market’s growth of 10.4%.

 

Emerging Markets: Our Global Generics segment’s revenues from “Emerging Markets” (which is comprised of Russia, other countries of the former Soviet Union, Romania and certain other countries from our “Rest of the World” markets, including South Africa, China, Brazil and Australia) for the three months ended December 31, 2021 were Rs.11,539 million, an increase of 20% as compared to Rs.9,623 million for the three months ended December 31, 2020.

 

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Russia: Our Global Generics segment’s revenues from Russia for the three months ended December 31, 2021 were Rs.4,746 million, an increase of 5% as compared to Rs.4,529 million for the three months ended December 31, 2020. In Russian rouble absolute currency terms (i.e., Russian roubles without taking into account the effect of currency exchange rates), such revenues increased by 2%. The increase in revenues was primarily on account of an increase in sales prices of our existing products and contribution from new products launched between January 1, 2021 and December 31, 2021, partially offset by a decrease in sales volumes of our existing products. Our over-the-counter (“OTC”) division’s revenues from Russia for the three months ended December 31, 2021 were 46% of our total revenues from Russia.

 

According to IQVIA, as per its report for the two months ended November 30, 2021, our sales value (in Russian roubles) growth and volume growth from Russia, as compared to the Russian pharmaceutical market sales value (in Russian roubles) growth and volume growth was as follows:

 

   For the two months ended November 30, 2021
   Dr. Reddy's Laboratories
Ltd.
  Russian
pharmaceutical
market
   Sales value  Volume  Sales value  Volume
Prescription (Rx)  20.4%  10.2%  13.6%  3.1%
Over-the-counter (OTC)  19.6%  17.9%  14.6%  1.8%
Total (Rx + OTC)  20.0%  13.1%  14.1%  2.3%

 

Other countries of the former Soviet Union and Romania: Our Global Generics segment’s revenues from other countries of the former Soviet Union and Romania were Rs.2,375 million for the three months ended December 31, 2021, an increase of 11% as compared to Rs.2,147 million for the three months ended December 31, 2020. This increase was largely attributable to additional revenues from new products launched between January 1, 2021 and December 31, 2021 and an increase in sales price of our existing products, partially offset by a decrease in sales volumes of certain of our existing products.

 

“Rest of the World” Markets: We refer to all markets of this segment other than North America (the United States and Canada), Europe, Russia and other countries of the former Soviet Union, Romania and India as our “Rest of the World” markets. Our Global Generics segment’s revenues from our “Rest of the World” markets were Rs.4,418 million for the three months ended December 31, 2021, an increase of 50% as compared to Rs.2,947 million for the three months ended December 31, 2020. This increase was largely attributable to additional revenues from new products launched between January 1, 2021 and December 31, 2021 and an increase in the sales volumes of our existing products, partly offset by a decrease in prices of our existing products.

 

Pharmaceutical Services and Active Ingredients (“PSAI”)

 

Our PSAI segment’s revenues for the three months ended December 31, 2021 were Rs.7,271 million, an increase of 4% as compared to Rs.7,009 million for the three months ended December 31, 2020. After taking into account the impact of exchange rate fluctuations of the Indian rupee against multiple currencies in the markets in which we operate, this increase was largely attributable to the additional revenues from new products launched between January 1, 2021 and December 31, 2021.

 

Proprietary Products

 

Revenues from our Proprietary Products segment were Rs.129 million for the three months ended December 31, 2021, an increase of 4% as compared to Rs.124 million for the three months ended December 31, 2020.

 

 39 

 

 

Gross Profit

 

Our total gross profit was Rs.28,612 million for the three months ended December 31, 2021, representing 53.8% of our revenues for that period, as compared to Rs.26,538 million for the three months ended December 31, 2020, representing 53.8% of our revenues for that period.

 

The following table sets forth, for the period indicated, our gross profits by segment:

 

   For the three months ended December 31, 
   2021   2020 
   (Rs. in millions) 
   Gross Profit   % of Segment
Revenue
   Gross Profit   % of Segment
Revenue
 
Global Generics  Rs.25,731    57.8%  Rs.23,454    57.6%
PSAI   1,638    22.5%   1,773    25.3%
Proprietary Products   129    100.0%   100    80.6%
Others   1,114    86.4%   1,211    85.8%
Total  Rs.28,612    53.8%  Rs.26,538    53.8%

 

The gross profit margin from our Global Generics segment increased to 57.8% of this segment’s revenues for the three months ended December 31, 2021 from 57.6% for the three months ended December 31, 2020. This increase was on account of an increase in the proportion of sales of certain products with higher gross margins and reduction in procurement cost for certain products. This increase was partially offset by price erosion in certain of our products, primarily in the United States and Europe.

 

The gross profit margin from our PSAI segment decreased to 22.5% of this segment’s revenues for the three months ended December 31, 2021, from 25.3% for the three months ended December 31, 2020. This decrease was primarily on account of price erosion in certain of our products and an increase in input costs of some raw materials and increase in inventory provisions.

 

Selling, general and administrative expenses

 

Our selling, general and administrative expenses were Rs.15,411 million for the three months ended December 31, 2021, an increase of 7% as compared to Rs.14,387 million for the three months ended December 31, 2020. After taking into account the impact of exchange rate fluctuations of the Indian rupee against multiple currencies in the markets in which we operate, this increase was largely attributable to the following:

 

·a 3% increase due to higher selling and advertisement expenses;

 

·a 2% increase due to higher personnel costs, primarily on account of annual raises;

 

·a 1% increase due to higher royalty fees; and

 

·a 1% increase due to higher spending on other costs, including freight outward expenses.

 

As a proportion of our total revenues, our selling, general and administrative expenses decreased to 29.0% for the three months ended December 31, 2021 from 29.2% for the three months ended December 31, 2020.

 

Impairment of non-current assets

 

Our impairment of non-current assets charge were Rs.47 million for the three months ended December 31, 2021 as compared to a charge of Rs.5,972 million for the three months December 31, 2020 (Refer to Note 10 of the interim financial statements for further details).

 

Research and development expenses

 

Our research and development expenses were Rs.4,159 million for the three months ended December 31, 2021, an increase of 1% as compared to Rs.4,108 million for the three months ended December 31, 2020. This increase was primarily on account of higher developmental expenditures on certain projects in our Global Generics segment.

 

As a proportion of our total revenues, our research and development expenses was at 7.8% for the three months ended December 31, 2021, as compared to 8.3% for the three months ended December 31, 2020.

 

 40 

 

  

Other income, net

 

Our net other income was Rs.240 million for the three months ended December 31, 2021, as compared to net other income of Rs.128 million for the three months ended December 31, 2020.

 

Finance income, net

 

Our net finance income was Rs.289 million for the three months ended December 31, 2021, as compared to Rs.493 million for the three months ended December 31, 2020. This decrease in net finance income was due to the following:

 

·profit on sale of investments, and unrealized gains on investments recorded at fair value through profit and loss, of Rs.26 million for the three months ended December 31, 2021, as compared to profit on sale of investments of Rs.111 million for the three months ended December 31, 2020;

 

·net interest income of Rs.47 million for the three months ended December 31, 2021, as compared to net interest income of Rs.69 million for the three months ended December 31, 2020; and

 

·net foreign exchange gain of Rs.216 million for the three months ended December 31, 2021, as compared to net foreign exchange gain of Rs.313 million for the three months ended December 31, 2020.

 

Profit before tax

 

As a result of the above, our profit before tax was Rs.9,709 million for the three months ended December 31, 2021, as compared to Rs.2,843 million for the three months ended December 31, 2020.

 

Tax expense

 

Our consolidated weighted average tax rate was 27.1% for the three months ended December 31, 2021, as compared to 93.0% for the three months ended December 31, 2020.

 

Our effective tax rate for the three months ended December 31, 2020 was significantly higher due to a lower profit base on account of impairment losses of Rs.5,972 million.  After adjusting these impairment losses, the adjusted effective tax rate stands at 30% for the three months ended December 31, 2020.  The effective tax rate for the three months ended December 31, 2021 was lower as compared to the adjusted tax rate for three months ended December 31, 2020, primarily on account of the changes in our jurisdictional mix of earnings (i.e., an increase in the proportion of our profits from lower tax jurisdictions and decrease in the proportion of our profits from higher tax jurisdictions).

 

Our tax expense was Rs.2,644 million for the three months ended December 31, 2021 as compared to Rs.2,645 million for the three months ended December 31, 2020.

 

Profit for the period

 

As a result of the above, our net profit was Rs.7,065 million for the three months ended December 31, 2021, representing 13.3% of our total revenues for such period, as compared to Rs.198 million for the three months ended December 31, 2020, representing 0.4% of our total revenues for such period.

 

 41 

 

  

Section B:

 

Nine months ended December 31, 2021 compared to the nine months ended December 31, 2020

 

The following table sets forth, for the periods indicated, financial data along with respective percentages to total revenues and the increase (or decrease) by item as a percentage of the amount over the comparable period in the previous year.

 

   For the nine months ended December 31, 
   2021   2020     
   Rs. in
millions
   % of
Revenues
   Rs. in
millions
   % of
Revenues
   Increase/
(Decrease)
 
Revenues  Rs.160,023    100.0%  Rs.142,438    100.0%   12%
Gross profit   85,097    53.2%   77,702    54.6%   10%
Selling, general and administrative expenses   46,407    29.0%   40,280    28.3%   15%
Research and development expenses   13,156    8.2%   12,447    8.7%   6%
Impairment of non-current assets   47    0.0%   6,753    4.7%   (99%)
Other income, net   (2,470)   (1.5%)   (395)   (0.3%)   525%
Results from operating activities   27,957    17.5%   18,617    13.1%   50%
Finance income, net   1,260    0.8%   1,335    0.9%   (6%)
Share of profit of equity accounted investees, net of  tax   598    0.4%   301    0.2%   99%
Profit before tax   29,815    18.6%   20,253    14.2%   47%
Tax expense / (benefit), net   7,122    4.5%   6,639    4.7%   7%
Profit for the period  Rs.22,693    14.2%  Rs.13,614    9.6%   67%

 

Revenues

 

Our overall consolidated revenues were Rs.160,023 million for the nine months ended December 31, 2021, an increase of 12% as compared to Rs.142,438 million for the nine months ended December 31, 2020.

 

The following table sets forth, for the periods indicated, our consolidated revenues by segment:

 

   For the nine months ended December 31, 
   2021     2020       
   Rs. in
millions
   Revenues %
of Total
   Rs. in
millions
   Revenues %
of Total
   Increase/
(Decrease)
 
Global Generics  Rs.133,052    83%  Rs.115,667    81%   15%
PSAI   23,183    14%   24,067    17%   (4%)
Proprietary Products   1,420    1%   280    0%   407%
Others   2,368    1%   2,424    2%   (2%)
Total  Rs.160,023    100%  Rs.1,42,438    100%   12%

 

Segment Analysis

 

Global Generics

Revenues from our Global Generics segment were Rs.133,052 million for the nine months ended December 31, 2021, an increase of 15% as compared to Rs.115,667 million for the nine months ended December 31, 2020. The revenue increase was in all of the four business geographies of this segment: North America (the United States and Canada), Europe, India, and “Emerging Markets” (which is comprised of Russia, other countries of the former Soviet Union, Romania and certain other countries from our “Rest of the World” markets, including South Africa, China, Brazil and Australia).

 

After taking into account the impact of exchange rate fluctuations of the Indian rupee against multiple currencies in the markets in which we operate, the foregoing increase in revenues of this segment was attributable to the following factors:

 

·an increase of approximately 17% resulting from new products launched during the period;

 

·an increase of approximately 8% resulting from a net increase in the sales volumes of existing products in this segment; and

 

·the foregoing was partially offset by a decrease of approximately 10% resulting from the net impact of changes in sales prices of the products in this segment.

 

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North America (the United States and Canada): Our Global Generics segment’s revenues from North America (the United States and Canada) were Rs.54,944 million for the nine months ended December 31, 2021, an increase of 4% as compared to Rs.53,003 million for the nine months ended December 31, 2020. In U.S. dollar absolute currency terms (i.e., U.S. dollars without taking into account the effect of currency exchange rates), such revenues increased by 4% in the nine months ended December 31, 2021 as compared to the nine months ended December 31, 2020.

 

During the nine months ended December 31, 2021, we launched 14 new products in North America (the United States and Canada). We launched nine new products in the United States, which are sapropterin dihydrochloride powder for oral solution, albendazole tablets, ertapenem injection, icosapent ethyl capsules, chlordiazepoxide hydrochloride & clidinium bromide capsules, carmustine injection, ephedrine sulphate injection, valsartan tablets and venlafaxine extended release tablets. We also launched five new products in Canada, which are alitretinoin capsules, sodium nitroprusside injection, lenalidomide capsules, ertapenem injection and dasatinib tablets.

 

Europe: Our Global Generics segment’s revenues from Europe were Rs.12,187 million for the nine months ended December 31, 2021, an increase of 6% as compared to Rs.11,448 million for the nine months ended December 31, 2020. After taking into account the impact of exchange rate fluctuations of the Indian rupee against the European Euro and Great Britain’s Pound sterling, this increase was largely attributable to the new products launched and an increase in the sales volumes of our existing products, partly offset by a decrease in prices of our existing products.

 

India: Our Global Generics segment’s revenues from India were Rs.32,268 million for the nine months ended December 31, 2021, an increase of 29% as compared to Rs.24,975 million for the nine months ended December 31, 2020. During the nine months ended December 31, 2021, we launched twelve new brands in India.

 

According to IQVIA in its Moving Annual Total report for the twelve months ended December 31, 2021, our secondary sales in India grew by 23.1% during such period, as compared to the India pharmaceutical market’s growth of 18.1%.

 

Emerging Markets: Our Global Generics segment’s revenues from “Emerging Markets” (which is comprised of Russia, other countries of the former Soviet Union, Romania and certain other countries which we refer to as our “Rest of the World” markets, primarily South Africa, China, Brazil and Australia) for the nine months ended December 31, 2021 were Rs.33,653 million, an increase of 28% as compared to Rs.26,242 million for the nine months ended December 31, 2020.

 

Russia: Our Global Generics segment’s revenues from Russia for the nine months ended December 31, 2021 were Rs.14,015 million, an increase of 19% as compared to Rs.11,779 million for the nine months ended December 31, 2020. In Russian rouble absolute currency terms (i.e., Russian roubles without taking into account the effect of currency exchange rates), such revenues increased by 20%. Our OTC division’s revenues from Russia for the nine months ended December 31, 2021 were 47% of our total revenues from Russia.

 

According to IQVIA, as per its report for the eight months ended November 30, 2021, our sales value growth (in Russian roubles) and volume growth from Russia, as compared to the Russian pharmaceutical market, was as follows:

 

   For the eight months ended November 30, 2021
   Dr. Reddy's Laboratories
Ltd.
  Russian pharmaceutical
market
   Sales value  Volume  Sales value  Volume
Prescription (Rx)  16.7%  9.8%  15.5%  4.2%
Over-the-counter (OTC)  17.9%  16.1%  13.1%  (0.9)%
Total (Rx + OTC)  17.3%  12.0%  14.3%  0.8%

 

Other Countries of former Soviet Union and Romania: Our Global Generics segment’s revenues from other countries of the former Soviet Union and Romania were Rs.5,987 million for the nine months ended December 31, 2021, an increase of 8% as compared to Rs.5,524 million for the nine months ended December 31, 2020.

 

“Rest of the World” Markets: We refer to all markets of this segment other than North America (the United States and Canada), Europe, Russia and other countries of the former Soviet Union, Romania and India as our “Rest of the World” markets. Our Global Generics segment’s revenues from our “Rest of the World” markets were Rs.13,651 million for the nine months ended December 31, 2021, an increase of 53% as compared to Rs.8,939 million for the nine months ended December 31, 2020.

 

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Pharmaceutical Services and Active Ingredients (“PSAI”)

 

Our PSAI segment’s revenues for the nine months ended December 31, 2021 were Rs.23,183 million, a decrease of 4% as compared to Rs.24,067 million for the nine months ended December 31, 2020. After taking into account the impact of exchange rate fluctuations of the Indian rupee against multiple currencies in the markets in which we operate, this decrease was largely attributable to a decrease in sales volumes and price of some our existing products, partially offset by the contribution from new products launched.

 

Proprietary Products

 

Revenues from our Proprietary Products segment were Rs.1,420 million for the nine months ended December 31, 2021, an increase of 407% as compared to Rs.280 million for the nine months ended December 31, 2020. This increase was primarily on account of recognition of Rs.1,084 million from a licence fee associated with the sale of our U.S. and Canada territory rights for ELYXYB® (celecoxib oral solution) 25 mg/ml, to BioDelivery Sciences International, Inc., in the nine months ended December 31, 2021.

 

Gross Profit

 

Our total gross profit was Rs.85,097 million for the nine months ended December 31, 2021, representing 53.2% of our revenues for that period, as compared to Rs.77,702 million for the nine months ended December 31, 2020, representing 54.6% of our revenues for that period.

 

   For the nine months ended December 31, 
   2021   2020 
   (Rs. in millions) 
   Gross Profit   % of Segment
Revenue
   Gross Profit   % of Segment
Revenue
 
Global Generics  Rs.76,440    57.5%  Rs.68,665    59.4%
Pharmaceutical Services and Active Ingredients (PSAI)   5,434    23.4%   6,913    28.7%
Proprietary Products   1,406    99.0%   244    87.1%
Others   1,817    76.7%   1880    77.6%
Total  Rs.85,097    53.2%  Rs.77,702    54.6%

 

After taking into account the impact of the exchange rate fluctuations of the Indian rupee against multiple currencies in the markets in which we operate, the gross profit margin from our Global Generics segment decreased to 57.5% of this segment’s revenues for the nine months ended December 31, 2021, from 59.4% for the nine months ended December 31, 2020. This decrease was on account of price erosion in certain of our products, primarily in the United States and Europe, and also due to lower export benefits (i.e., tax benefits applicable to exports). This decrease was partially offset by a lower rate of increase in manufacturing overhead costs as compared to sales.

 

The gross profit margin from our PSAI segment decreased to 23.4% of this segment’s revenues for the nine months ended December 31, 2021, from 28.7% for the nine months ended December 31, 2020. This decrease was primarily on account of price erosion in certain of our products, an increase in input costs of some raw materials, increase in provision for inventory and lower export benefit.

 

Selling, general and administrative expenses

 

Our selling, general and administrative expenses were Rs.46,407 million for the nine months ended December 31, 2021, an increase of 15% as compared to Rs.40,280 million for the nine months ended December 31, 2020. After taking into account the impact of exchange rate fluctuations of the Indian rupee against multiple currencies in the markets in which we operate, this increase was largely attributable to the following:

 

·a 5% increase due to higher selling and advertisement expenses;

 

·a 4% increase due to higher personnel costs, primarily on account of annual raises;

 

·a 3% increase due to higher legal and professional expenses; and

 

·a 3% increase due to higher royalty fees.

 

As a proportion of our total revenues, our selling, general and administrative expenses were 29.0% for the nine months ended December 31, 2021, as compared to 28.3% for the nine months ended December 31, 2020.

 

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Impairment of non-current assets

 

Our impairment of non-current assets expense charge were Rs.47 million for the nine months ended December 31, 2021 as compared to a charge of Rs.6,753 million for the nine months December 31, 2020. (Refer to Note 10 of the interim financial statements for further details).

 

Research and development expenses

 

Our research and development costs were Rs.13,156 million for the nine months ended December 31, 2021, an increase of 6% as compared to Rs.12,447 million for the nine months ended December 31, 2020. This increase was primarily on account of higher developmental expenditure on certain projects in our Global Generics segment.

 

Other income, net

 

Our net other income was Rs.2,470 million for the nine months ended December 31, 2021, as compared to net other income of Rs.395 million for the nine months ended December 31, 2020. The other income was higher for the nine months ended December 31, 2021 primarily on account of recognition of an income of Rs.1,064 million towards sale of all of our rights relating to our anti-cancer agent E7777 (denileukin diftitox) to Citius Pharmaceuticals, Inc.

 

Finance income, net

 

Our net finance income was Rs.1,260 million for the nine months ended December 31, 2021, as compared to Rs.1,335 million for the nine months ended December 31, 2020. This decrease in net finance income was due to the following:

 

·profit on sale of investments, and unrealized gains on investments recorded at fair value through profit and loss, of Rs.243 million for the nine months ended December 31, 2021, as compared to profit on sale of investments of Rs.500 million for the nine months ended December 31, 2020;

 

·net interest income of Rs.66 million for the nine months ended December 31, 2021, as compared to net interest expense of Rs.13 million for the nine months ended December 31, 2020; and

 

·net foreign exchange gain of Rs.951 million for the nine months ended December 31, 2021, as compared to net foreign exchange gain of Rs.848 million for the nine months ended December 31, 2020.

 

Profit before tax

 

As a result of the above, our profit before tax was Rs.29,815 million for the nine months ended December 31, 2021, an increase of 47% as compared to Rs.20,253 million for the nine months ended December 31, 2020.

 

Tax expense

 

Our consolidated weighted average tax rate was 23.9% for the nine months ended December 31, 2021, as compared to 32.8% for the nine months ended December 31, 2020. Our tax expense was Rs.7,122 million for the nine months ended December 31, 2021 as compared to Rs.6,639 million for the nine months ended December 31, 2020.

 

Our effective tax rate for the nine months ended December 31, 2020 was higher due to a lower profit base on account of impairment losses of Rs.6,753 million. After adjusting these impairment losses, the adjusted effective tax rate stands at 24.6% for the nine months ended December 31, 2020.

 

The effective tax rate for the nine months ended December 31, 2021 was lower as compared to the adjusted tax rate for the nine months ended December 31, 2020, primarily on account of the changes in our jurisdictional mix of earnings (i.e., an increase in the proportion of our profits from lower tax jurisdictions and decrease in proportion of our profits from higher tax jurisdictions).

 

Profit for the period

 

As a result of the above, our net profit was Rs.22,693 million for the nine months ended December 31, 2021, representing 14.2% of our total revenues for such period, as compared to Rs.13,614 million for the nine months ended December 31, 2020, representing 9.6% of our total revenues for such period.

 

 45 

 

 

ITEM 3. LIQUIDITY AND CAPITAL RESOURCES

 

We have primarily financed our operations through cash flows generated from operations and a mix of long-term and short-term borrowings. Our principal liquidity and capital needs are for the purchase of property, plant and equipment, regular business operations and research and development.

 

Our principal sources of short-term liquidity are internally generated funds and short-term borrowings, which we believe are sufficient to meet our working capital requirements.

 

Principal Debt Obligations

 

The following table provides a list of our principal debt obligations (excluding lease obligations) outstanding as of December 31, 2021:

 

  

Amount
(Rs. in millions)

   Currency(1)  Interest Rate(2)
Pre-shipment credit  Rs.16,211   INR  3 Months T-bill +10 bps to 25 bps
Other working capital borrowings   5,120   U.S.$  (1.90)% to (1.80)%(3)
        RUB  6 Months MosPrime + 65 bps
        MXN  TIIE + 1.15%
        INR  3.90% to 4.01%
        BRL  CDI + 1.79%
        UAH  7.25%
Long-term Non-convertible debentures   3,800   INR  6.77%

 

(1)“INR” means Indian rupees, “U.S.$” means United States Dollars, “RUB” means Russian roubles, “MXN” means Mexican pesos, “BRL” means Brazilian reals and “UAH” means Ukrainian hryvnia.

 

(2)“TIIE” means the Equilibrium Inter-banking Interest Rate (Tasa de Interés Interbancaria de Equilibrio), “T-bill” means the India Treasury Bill interest rate, “MosPrime” means Moscow Prime Offered rate and “CDI” means the Certificado de Depósito Interbancário (a daily average of overnight interbank loans, which is used as an investment benchmark in the Brazilian financial system).

 

(3)Against some of its intra-group receivables denominated in U.S.$, the parent company obtained post-shipment credits from banks at an interest rate equal to the INR interest rate discounted by the U.S.$/INR forward premium, resulting in a negative U.S.$ interest rate.

 

Summary of statements of cash flows

 

The following table summarizes our statements of cash flows for the periods presented:

 

   For the nine months ended
December 31,
 
   2021   2020 
   (Rs. in millions) 
Net cash from/(used in):          
Operating activities  Rs.18,989   Rs.24,437 
Investing activities   (4,399)   (13,210)
Financing activities   (7,519)   (8,938)
Net increase in cash and cash equivalents  Rs.7,071   Rs.2,289 

 

In addition to cash, inventory and accounts receivable, our unused sources of liquidity included Rs.40,604 million available in credit under revolving credit facilities with banks as of December 31, 2021.

 

Cash Flows from Operating Activities

The result of operating activities was a net cash inflow of Rs.18,989 million for the nine months ended December 31, 2021, as compared to a cash inflow of Rs.24,437 million for the nine months ended December 31, 2020.

 

The decrease in net cash inflow of Rs.5,448 million was primarily due to an increase in our working capital requirements.

 

Our average days’ sales outstanding (“DSO”) as of December 31, 2021, March 31, 2021 and December 31, 2020 were 104 days, 93 days and 96 days, respectively. The increase in our DSO as compared to March 31, 2021 was primarily on account of a reduction in the sale to a bank of our trade receivables in North America (Refer to Note 6 for details).

 

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Cash Flows used in Investing Activities

 

Our investing activities resulted in net cash outflows of Rs.4,399 million and Rs.13,210 million for the nine months ended December 31, 2021 and 2020, respectively. The decrease in net cash outflow was primarily on account of the following:

 

·the acquisition of property, plant and equipment, and other intangible assets, net of dispositions, of Rs.11,885 million for the nine months ended December 31, 2021, as compared to Rs.9,302 million for the nine months ended December 31, 2020;
·net proceeds from sale of other investments of Rs.6,814 million for the nine months ended December 31, 2021, as compared to net proceeds from sales of other investments of Rs.10,535 million for the nine months ended December 31, 2020; and
·the payment, in connection with our acquisition of certain business assets from Wockhardt Limited, of Rs.15,514 million for the nine months ended December 31, 2020.

 

Cash Flows from Financing Activities

 

Our financing activities resulted in net cash outflows of Rs.7,519 million and Rs.8,938 million for the nine months ended December 31, 2021 and 2020, respectively. The decrease in net cash outflow was primarily on account of the following:

 

·net repayment of short-term borrowings of Rs.2,083 million for the nine months ended December 31, 2021, as compared to net repayment of short-term and long-term borrowings of Rs.3,290 million for the nine months ended December 31, 2020;
·payments of dividends of Rs.4,146 million for the nine months ended December 31, 2021, as compared to payments of dividends of Rs.4,147 million for the nine months ended December 31, 2020;
·interest payments of Rs.1,032 million for the nine months ended December 31, 2021, as compared to interest payments of Rs.995 million for the nine months ended December 31, 2020; and
·payments of the principal portion of lease liabilities of Rs.584 million for the nine months ended December 31, 2021, as compared to payments of the principal portion of lease liabilities of Rs.565 million for the nine months ended December 31, 2020.

 

 47 

 

 

ITEM 4. OTHER MATTERS

 

None

 

ITEM 5. EXHIBITS

 

Exhibit Number   Description of Exhibits
     
99.1   Review report of Independent Registered Public Accounting Firm

 

 48 

 

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

DR. REDDY’S LABORATORIES LIMITED

(Registrant)

   
Date:  January 28, 2022 By:   /s/  Parag Agarwal
    Name:   Parag Agarwal
    Title:   Chief Financial Officer

 

 49 

Exhibit 99.1

 

Report of Independent Registered Public Accounting Firm

 

To the Shareholders and Board of Directors of Dr. Reddy’s Laboratories Limited

 

Results of Review of Interim Financial Statements

 

We have reviewed the accompanying condensed consolidated interim statement of financial position of Dr. Reddy’s Laboratories Limited and subsidiaries (the Company) as of December 31, 2021, the related condensed consolidated interim income statements and statements of comprehensive income for the three and nine-month periods ended December 31, 2021 and 2020, the statements of changes in equity and cash flows for the nine-month periods ended December 30, 2021 and 2020, and the related notes (collectively referred to as the “condensed consolidated interim financial statements”). Based on our reviews, we are not aware of any material modifications that should be made to the condensed consolidated interim financial statements for them to be in conformity with International Accounting Standard (IAS) 34, Interim Financial Reporting as issued by the International Accounting Standards Board.

 

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statement of financial position of the Company as of March 31, 2021, the related consolidated income statements, statements of comprehensive income, shareholders' equity and cash flows for the year then ended, and the related notes and schedules (not presented herein); and in our report dated June 30, 2021, we expressed an unqualified audit opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated statement of financial position as of March 31, 2021, is fairly stated, in all material respects, in relation to the consolidated statement of financial position from which it has been derived.

 

Basis for Review Results

 

These financial statements are the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB. We conducted our review in accordance with the standards of the PCAOB. A review of interim financial statements consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

 

/s/ Ernst & Young Associates LLP

 

Hyderabad, India

January 28, 2022

 

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