Dr. Reddy’s Laboratories Ltd. (NYSE:RDY) today announced its
unaudited financial results for the third quarter ended December 31,
2007.
— Growth in Q3 FY08 revenues at 8% over Q3 FY07; Excludes the
upsides from authorized generics and ondansetron exclusivity
in Q3 FY07
— Q3 FY08 Revenue at Rs 12.3 billion ($313 mn) as against Rs
15.4 billion ($392 mn) in Q3 FY07.
— Q3 FY08 EBITDA at Rs 2,037 million ($52 mn) as against Rs
2,850 million ($72 mn) in Q3 FY07
— Improvements in the supply situation at betapharm (Germany)
and higher contribution from products that have been
transferred to India.
— However, due to impact of several price reforms, increasing
rebates to insurance companies and change in the composition
of our top products, the Company has taken an additional
amortization of certain product related intangibles of
betapharm of Rs 2,361 million ($60 mn)
— This has resulted in Q3 FY08 PAT being Rs (847) million ($(21)
mn) as against Rs 1,879 million ($48 mn) in Q3 FY07
— Without the additional amortization, the Company’s Q3 FY08 PAT
would have been at Rs 1,034 million ($26 mn)
Note: With effect from Q1 FY08, the rebate payments to insurance
companies in Germany are being adjusted in the revenue line item in
line with the recommendation of our statutory auditors. Revenue from
betapharm in Q3 FY08 as reported reflects such adjustment pertaining
to Q3 FY08 only.
Q3 FY08 Key highlights
– Revenues at Rs 12.3 billion ($313 mn) in Q3 FY08 as against Rs 15.4
billion ($392 mn) in Q3 FY07, representing a decrease of 20%.
— On a like-to-like comparison, Revenues increase by 8% (in rupee
terms) in Q3 FY08.
– Revenues in India (finished dosage) increase by 16% to Rs. 2
billion ($51 mn) in Q3 FY08 from Rs. 1.7 billion ($44 mn) in Q3
FY07 driven by growth in key brands and new product launches.
– Revenues in Russia (finished dosage) increase by 12% to Rs. 1
billion ($28 mn) in Q3 FY08 from Rs. 976 million ($25 mn) in Q3
FY07 driven by growth in key brands as well as contribution from
new product launches.
– Revenues from North America (finished dosages) increase by 69% to
Rs 1.7 billion ($44 mn) excluding the benefit of upsides from
authorized generics and ondansetron exclusivity in Q3 FY07 of Rs
3.6 billion. Combined revenues from fexofenadine and finasteride
at Rs 823 million ($21 mn) in Q3 FY08.
– Revenues in the API business increase by 8% to Rs 2.9 billion ($74
mn) in Q3 FY08 from Rs 2.7 billion ($69 mn) in Q3 FY07 primarily
driven by growth across key markets.
– Revenues from organic segment of custom pharmaceuticals services
business increase by 24% to Rs 456 million ($12 mn) in Q3 FY08
from Rs 368 million ($9 mn) in Q3 FY07.
– Revenues from Germany (betapharm) at Rs. 2 billion ($52 mn) in Q3
FY08 as compared to Rs. 2.6 billion ($68 mn) in Q3 FY07. This
decline is the result of (a) adjustment of rebate payments to
insurance companies from revenues in Q3 FY08 and (b) ongoing
supply constraints, year-on-year price declines as well as rupee
appreciation against the Euro.
– Starting December 2007, two key products of simvastatin and
omeprazole have been shipped from India to Germany; The Company is
making good progress with the transfer of products out of our
major supplier and till date, 33 products have received site
transfer approvals including 6 to India.
Commenting on the results, GV Prasad, Vice-Chairman and CEO of Dr.
Reddy’s Laboratories, said, “In the first nine months of the current
fiscal, on a like-to-like comparison, we have grown revenues by 9% to
$932 million and generated an EBITDA of $ 218 million. We remain
confident of the outlook for the next financial year. We expect
sustained profit and sales growth in APIs and the branded generics
business in India and Russia. We expect to benefit from the upside
potential from the launch of sumatriptan (GSK’s Imitrex) in the U.S.
in Q3 FY09. Germany is an important market for Dr. Reddy’s and we
remain committed to building a profitable business over the next few
years. Our immediate priority is to de-risk the supply situation and
we are making good progress with the transfer of products out of our
major supplier to our facility in India and to other manufacturers
within Europe. Despite the competitive pressures in this market, we
will target to improve the market shares on the back of assured
supplies, new launches and cost savings from the transfer of key
products out of India.”
All figures in millions, except EPS
All dollar figures based on convenience translation rate of 1 USD = Rs
39.41
EXTRACT FROM THE UNAUDITED INCOME STATEMENT
Q3 FY08 Q3 FY07
—————————– ———— —- ———– — ——
Particulars ($) (Rs.) % ($) (Rs.) % Growth
%
—————————– —- ——- —- —- —— — ——
Total Revenues 313 12,320 100 392 15,434 100 (20)
—————————– —- ——- —- —- —— — ——
Cost of revenues 159 6,285 51 221 8,690 56 (28)
—————————– —- ——- —- —- —— — ——
Gross profit 153 6,034 49 171 6,744 44 (11)
—————————– —- ——- —- —- —— — ——
Selling, General &
Administrative Expenses 95 3,760 31 91 3,604 23 4
—————————– —- ——- —- —- —— — ——
R&D Expenses (1) 23 894 7 17 676 4 32
—————————– —- ——- —- —- —— — ——
Amortization Expenses 10 379 3 8 330 2 15
—————————– —- ——- —- —- —— — ——
Write-down of intangible
assets 60 2,361 19 - - - -
—————————– —- ——- —- —- —— — ——
Other operating
(income)/expense net 0 (1) 0 (1) (21) 0 (93)
—————————– —- ——- —- —- —— — ——
Forex Loss/ (Gain) (2) (87) (1) 1 49 0 -
—————————– —- ——- —- —- —— — ——
Operating income/(loss) (32) (1,271) (10) 53 2,105 14 -
—————————– —- ——- —- —- —— — ——
Equity in (loss)/gain of
affiliates 0 3 0 (0) (12) 0 -
—————————– —- ——- —- —- —— — ——
Other income/(expense) net 1 39 0 (6) (241) (2) -
—————————– —- ——- —- —- —— — ——
Income before income taxes
and minority interest (31) (1,230) (10) 47 1,852 12 -
—————————– —- ——- —- —- —— — ——
Income tax (expense)/benefit 10 380 3 1 27 0
—————————– —- ——- —- —- —— — ——
Minority interest 0 3 0 - 0 0
—————————– —- ——- —- —- —— — ——
Net income (21) (847) (7) 48 1,879 12 -
—————————– —- ——- —- —- —— — ——
DEPS (5.04) 11.73
—————————– —- ——- —- —- —— — ——
Exchange rate 39.41 39.41
—————————– —- ——- —- —- —— — ——
Key Balance Sheet Items
———————————————————————-
As on As on
31 Dec 07 30 Sept 07
—————————– ———— —- ———– — ——
Cash and cash equivalents 158 6,244 214 8,445
—————————– —- ——- —- —- —— — ——
Investment in securities
(current & non-current) 108 4,252 56 2,197
—————————– —- ——- —- —- —— — ——
Borrowings from banks
(Short Long) 433 17,073 415 16,351
—————————– —- ——- —- —- —— — ——
Accounts receivable, net of
allowances 197 7,757 213 8,390
—————————– —- ——- —- —- —— — ——
Inventories 262 10,326 244 9,620
—————————– —- ——- —- —- —— — ——
Property, plant and
equipment, net 374 14,748 346 13,658
—————————– —- ——- —- —- —— — ——
(1) Income recognition under Generics R&D partnership with ICICI
Venture amounted to Rs 77 million in Q3 FY07 compared to Rs nil in Q3
FY08. Reimbursement of expenses from Perlecan Pharma Private Limited
of Rs. 16 million in Q3 FY 08 as against Rs 79 million in Q3 FY07.
SEGMENTAL ANALYSIS
Active Pharmaceutical Ingredients (APIs)
— Revenues at Rs 2.9 billion in Q3 FY08 as against Rs 2.7
billion in Q3 FY 07, representing an increase of 8%.
— Revenues in India at Rs 566 million in Q3 FY08 as against Rs
482 million in Q3 FY07, representing an increase of 17%. This
growth was driven by the increase in sales of ciprofloxacin,
and ramipril.
— Revenues in North America increase by 89% to Rs. 999 million
in Q3 FY08 from Rs. 527 million in Q3 FY07 driven by
combination of new launches as well as new products under
development.
— Revenues in Europe increase by 26% to Rs. 649 million in Q3
FY08 from Rs. 515 million in Q3 FY07 driven by combination of
new launches as well as new products under development.
— Revenues in rest of the world markets decrease by 40% to Rs.
722 million in Q3 FY08 from Rs. 1.2 billion in Q3 FY07. The
impact of higher sales from supplies of sertraline during
180-day exclusivity in Q3 FY07 partially offset by the
increase in revenues from Japan and other markets in Q3 FY08.
— The Company filed 7 US DMFs during the quarter taking the
total filings to 117.
Generic Finished Dosages
– Revenues in this segment at Rs 4.2 billion in Q3 FY08 as against Rs
7.7 billion in Q3 FY07.
– North America contributed 42% and Europe contributed 58% to the
segment revenues.
– In North America, revenues at Rs. 1.7 billion in Q3 FY08 as against
Rs. 4.6 billion in Q3 FY07. Q3 FY07 included Rs 3.6 billion in
revenues from the authorized generics products for which
exclusivity ended in December 2006 and ondansetron exclusivity
revenues, which commenced towards the end of December 2006.
Excluding these revenues in Q3 FY07, the revenues increase by 69%
from Rs 1 billion in Q3 FY07 to Rs 1.7 billion in Q3 FY08.
— Revenues from fexofenadine, generic version of Allegra(R) at Rs.
395 million.
— Revenues from finasteride, generic version of Proscar(R) at Rs.
428 million.
— During the quarter, the company launched 2 new products;
omeprazole and amlodipine besylate.
– In Europe revenues decrease to Rs. 2.4 billion in Q3 FY08 compared
to Rs. 3 billion in Q3 FY07.
– Revenues from betapharm (Germany) at Rs. 2.0 billion in Q3 FY08 as
compared to Rs. 2.7 billion in Q3 FY07. This decline is the result
of (a) adjustment of rebate payments to insurance companies from
revenues starting Q1 FY08 and (b) ongoing supply constraints,
year-on-year price declines as well as rupee appreciation against
the Euro.
– During the quarter, the company was among the first few to launch
olanzapine tablets pending a final court decision. The company
also launched risperidone film coated tablets.
– Revenues from rest of Europe at Rs. 385 million in Q3 FY08 as
against Rs 371 million in Q3 FY07.
– In Q3 FY08, the Company filed 5 ANDA taking the total filings this
year to 14. The Company also received approval (including
tentative) for 18 ANDAs.
Branded Finished Dosages - International
— Revenues at Rs 1.9 billion in Q3 FY08, an increase of 12% over
Q3 FY07. This increase was driven by growth primarily in
Russia and CIS markets.
— Revenues in Russia increase by 12% to Rs. 1,094 million in Q3
FY08 as against Rs. 976 million in Q3 FY07. This growth was
primarily driven by increase in sales from key brands of
Keterol and Omez as well as the contribution from new products
launches. During the quarter, the company launched Irinotecan
injection.
— Revenues in CIS markets increase by 25% to Rs 409 million in
Q3 FY08 as against Rs 327 million in Q3 FY07. This growth was
primarily driven by increase in sales across key markets.
Branded Finished Dosages - India
— Revenues at Rs 1.9 billion in Q3 FY08 as compared to Rs. 1.7
billion in Q3 FY07, representing an increase of 16%. This
growth was primarily driven by growth in key brands of Omez,
Stamlo, Stamlo Beta, Razo and Atocor and the launch of
Reditux.
— As per ORG IMS November MAT 2007, the company recorded a
growth of 13% against the market growth rate of 12.3%.
Custom Pharmaceutical Services (CPS)
– Revenues from CPS at Rs. 1.3 billion in Q3 FY08 as compared to Rs
1.6 billion in Q3 FY07, representing a decline of 18.5%.
— Revenues from CPS organic business increase by 24% to Rs 456
million in Q3 FY08 from Rs 368 million in Q3 FY07.
— Revenues from Mexico decrease by 31% to Rs. 823 million in Q3
FY08 as compared to Rs. 1.2 billion in Q3 FY07.
Income Statement Highlights
— Gross profits at Rs. 6 billion in Q3 FY08 as against Rs. 6.7
billion in Q3 FY07. Gross profit margins on total revenues at
49% as against 44% in Q3 FY07. In Q3 FY07, revenues from
authorized generics contributed 22% to total revenues and
earned gross margins significantly below company average gross
margin. In Q3 FY08, the gross profit margin is lower than the
H1FY08 average on account of rebate payments to insurance
companies in Germany adjusted in net revenues and change in
business mix.
— R&D investments (net) at 7% of total revenues as against 4% in
Q3 FY07. Gross R&D investments increase by 9% to Rs 910
million as against Rs 832 million in Q3 FY07. In Q3 FY07, the
Company recognized Rs. 156 million under its R&D partnerships
as a benefit to the R&D line item as compared to Rs. 16
million in Q3 FY08.
— Selling, General & Administration (SG&A) expenses increase by
4% to Rs 3.8 billion. As % to revenues, the SG&A ratio to
revenue is at 31% in Q3 FY08.
— Forex gain of Rs 87 million in Q3 FY08 as compared to a loss
of Rs 49 million in Q3 FY07.
— Amortization at Rs. 379 million in Q3 FY08 as compared to Rs.
330 million in Q3 FY07.
— Additional amortization of certain product related intangible
assets of betapharm of Rs. 2,361 million in Q3 FY08.
— Net income at Rs (847) million as against Rs 1,879 million in
Q3 FY07. This translates to a diluted EPS of Rs (5.04) as
against Rs 11.73 in Q3 FY07.
General information
The following item was considered and adopted by the Board of
Directors of Dr. Reddy’s Laboratories today:
— Raise of further equity by way of preferential issue of share
warrants up to 5% of the existing equity of the Company
exercisable into equal number of equity shares of Rs.5 each to
the Promoters / Promoter Group as per “Guidelines on
Preferential Issues” under Chapter XIII of the SEBI (DIP)
Guidelines, 2000, subject to the shareholders approval.
About Dr. Reddy’s
Established in 1984, Dr. Reddy’s Laboratories (NYSE:RDY) is an
emerging global pharmaceutical company with proven research
capabilities. The Company is vertically integrated with a presence
across the pharmaceutical value chain. It produces finished dosage
forms, active pharmaceutical ingredients and biotechnology products
and markets them globally, with focus on India, US, Europe and Russia.
The Company conducts research in the areas of cancer, diabetes,
cardiovascular, inflammation and bacterial infection.
Disclaimer
This press release includes forward-looking statements, as defined
in the U.S. Private Securities Litigation Reform Act of 1995. We have
based these forward-looking statements on our current expectations and
projections about future events. Such statements involve known and
unknown risks, uncertainties and other factors that may cause actual
results to differ materially. Such factors include, but are not
limited to, changes in local and global economic conditions, our
ability to successfully implement our strategy, the market acceptance
of and demand for our products, our growth and expansion,
technological change and our exposure to market risks. By their
nature, these expectations and projections are only estimates and
could be materially different from actual results in the future.
Notes
1. Current quarter financial discussions below are on a
consolidated basis as per the US GAAP.
2. Detailed analysis of the financials is available on the
Company’s website at www.drreddys.com.