Dr. Reddy’s Laboratories Ltd. (BSE: 500124 | NSE: DRREDDY | NYSE: RDY | NSEIFSC: DRREDDY) today announced its consolidated financial results for the quarter ended Sep 30, 2023. The information mentioned in this release is based on consolidated financial statements under International Financial Reporting Standards (IFRS).

Commenting on the results, Co-Chairman & MD, G V Prasad said: “We delivered another quarter of strong results with highest ever sales and profits, driven by market share gains & momentum in our US generics business and robust growth in Europe. We are continuing to strengthen our pipeline both organically and through business development to drive growth and create differentiation.”

Revenue Analysis [Q2 FY24]

Global Generics (GG)

• Q2 FY24 revenue at Rs. 61.1 billion, YoY growth of 9% and QoQ growth of 2%. This growth was primarily driven by North America and Europe.

North America

• Q2 FY24 revenue at Rs. 31.7 billion, YoY growth of 13% and QoQ decline of 1%. The growth was on account of growing momentum in our core portfolio, Mayne integration, favorable move from foreign exchange which was partly offset by price erosion.
• During the quarter, we launched 4 new products in US.
• During the quarter, we filed 2 new Abbreviated New Drug Applications (ANDAs) with the US Food and Drug Administration (USFDA). As of 30^th Sep 2023, cumulatively 79 generic filings are pending for approval with the USFDA (75 ANDAs and 4 NDAs under 505(b)(2) route). Out of the pending 79 ANDAs, 41 are Para IVs, and we believe 20 have ‘First to File’ status.

Europe

• Q2 FY24 revenue at Rs. 5.3 billion, YoY growth of 26% and QoQ growth of 4%. The growth was driven by leveraging existing portfolio, contribution from new products and favorable forex which was partly offset by price erosion.

India

• Q2 FY24 revenue at Rs. 11.9 billion, YoY growth of 3% and QoQ increase of 3%. This growth was largely driven by pricing, new launches and partly offset by NLEM impact and muted demand due to weak acute season. Excluding NLEM, operational sales grew in mid-single digit.

Emerging Markets

• Q2 FY24 revenue from Emerging Markets at Rs. 12.2 billion, YoY decline of 1% and QoQ growth of 5%.
  • Revenue from Russia for the quarter at Rs. 5.8 billion, YoY decline of 3% and QoQ growth of 3%. YoY decline was majorly due to currency devaluation, excluding which YoY growth of 4% and QoQ growth of 9%. The increase was mainly driven by favorable pricing.
  • Revenue from other CIS countries and Romania for the year at Rs. 2.2 billion, YoY growth of 1% and QoQ growth of 12%. YoY growth, primarily on account of price increases on certain products, favorable move from foreign exchange which was partly offset by decline in base business volumes. QoQ growth was primarily driven by base business demand, partly offset by pricing pressure.
  • Revenue from Rest of World (RoW) territories for the year at Rs. 4.2 billion, YoY growth of 1% and QoQ growth of 6%. YoY growth, led by new product launches, which was partly offset by pricing pressure and lower base business. QoQ growth was mainly driven by new product launches and increase in demand of existing products and was partly offset by price erosion.

Pharmaceutical Services and Active Ingredients (PSAI)

• Q2 FY24 revenue at Rs. 7.0 billion, with a growth of 9% YoY and 5% QoQ. YoY growth was mainly driven by new product launches, favorable move from foreign exchange partly offset with price erosion. QoQ growth was mainly driven by new product launches.

Income Statement Highlights:

• Q2 FY24 gross margin at 58.7% (GG: 63.6%, PSAI: 17.8%). Gross margin decreased by ~40 bps YoY and was in line with preceding quarter. The decline in gross margin was primarily driven by marginal adverse price variance in certain products and mix change offset with favorable forex benefit.
• Selling, general & administrative (SG&A) expenses for Q2 FY24 at Rs. 18.8 billion, YoY increase of 13% and by 6% QoQ. The YoY SG&A spend increase is largely on account of investment in sales & marketing, digitalization, and other business initiatives.
• Research & development (R&D) expenses in Q2 FY24 at Rs. 5.4 billion. As % to Revenues – Q2FY24: 7.9% | Q1FY24: 7.4% | Q2 FY23: 7.7%. R&D investments are driven by ongoing clinical trials on differentiated assets, as well as other developmental efforts to build a healthy pipeline of new products across our markets for both small molecules and biosimilars.
• Other operating income for Q2 FY24 at Rs. 1.8 billion compared to Rs. 0.3 billion in Q2 FY23. Other operating income included the one-off income benefit of ~ Rs. 0.98 billion pursuant to settlement of product related litigation.
• Net Finance income for Q2 FY24 at Rs.1.2 billion compared to net finance expense of Rs. 0.2 billion in Q2 FY23. The higher income was primarily on account of profit on sale of units of mutual funds and other investments.
• Profit before Tax for Q2 FY24 at Rs. 19.1 billion, YoY growth of 19%. QoQ growth of 4%
• Profit after Tax for Q2 FY24 at Rs. 14.8 billion. The effective tax rate for the quarter has been 22.7% as compared to 30.9% in Q2 FY23. The lower tax was primarily due to adoption of corporate tax rate under section 115BAA of the Income Tax Act of India.
• Diluted earnings per share for Q2 FY24 is Rs. 88.78

Other Highlights:

• EBITDA for Q2 FY24 at Rs. 21.8 billion and the EBITDA margin is 31.7%.
• Capital expenditure for Q2 FY24 at Rs. 3.2 billion.
• Free cash-flow for Q2 FY24 at Rs. 14.5 billion (before acquisition payout).
• Net cash surplus for the company at Rs. 59.1 billion as on Sep 30, 2023.

All amounts in millions, except EPS

About key metrics and non-GAAP Financial Measures

This press release contains non-GAAP financial measures within the meaning of Regulation G and Item 10(e) of Regulation S-K. Such non-GAAP financial measures are measures of our historical performance, financial position or cash flows that are adjusted to exclude or include amounts from the most directly comparable financial measure calculated and presented in accordance with IFRS.

The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with IFRS. Our non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles. These measures may be different from non-GAAP financial measures used by other companies, limiting their usefulness for comparison purposes.

We believe these non-GAAP financial measures provide investors with useful supplemental information about the financial performance of our business, enable comparison of financial results between periods where certain items may vary independent of business performance, and allow for greater transparency with respect to key metrics used by management in operating our business.

For more information on our non-GAAP financial measures and a reconciliation of GAAP to non-GAAP measures, please refer to "Reconciliation of GAAP to Non-GAAP Results" table in this press release.

All amounts in millions, except EPS

Reconciliation of GAAP measures to non-GAAP measures

Free Cash Flow

Operating working capital

Net cash surplus

All amounts in millions, except EPS

Computation of Return on Capital Employed

Computation of capital employed.

Computation of EBITDA

Refer page no. 2 for EBITDA computations.

Earnings Call Details (07:30 pm IST, 10:00 am EDT, Oct 27, 2023)

The management of the Company will host an Earnings call to discuss the Company’s financial performance and answer any questions from the participants.

Pre-register with the below link and join without waiting for the operator.

https://services.choruscall.in/DiamondPassRegistration/register?confirmationNumber=7967211&linkSecurityString=2c6ede051b

No password/pin number is necessary to dial in to any of the above numbers. The operator will provide instructions on asking questions before and during the call.

Play Back: The play back will be available after the earnings call, till Nov 3^rd, 2023. For play back dial in phone No: +91 22 7194 5757, and Playback Code is 02796.

Transcript: Transcript of the Earnings call will be available on the Company’s website: www.drreddys.com

About Dr. Reddy’s: Dr. Reddy’s Laboratories Ltd. (BSE: 500124, NSE: DRREDDY, NYSE: RDY, NSEIFSC: DRREDDY) is a global pharmaceutical company headquartered in Hyderabad, India. Established in 1984, we are committed to providing access to affordable and innovative medicines. Driven by our purpose of ‘Good Health Can’t Wait’, we offer a portfolio of products and services including APIs, generics, branded generics, biosimilars and OTC. Our major therapeutic areas of focus are gastrointestinal, cardiovascular, diabetology, oncology, pain management and dermatology. Our major markets include – USA, India, Russia & CIS countries, China, Brazil, and Europe. As a company with a history of deep science that has led to several industry firsts, we continue to plan and invest in businesses of the future. As an early adopter of sustainability and ESG actions, we released our first Sustainability Report in 2004. Our current ESG goals aim to set the bar high in environmental stewardship; access and affordability for patients; diversity; and governance. For more information, log on to: www.drreddys.com.

Disclaimer: This press release may include statements of future expectations and other forward-looking statements that are based on the management’s current views and assumptions and involve known or unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in such statements. In addition to statements which are forward-looking by reason of context, the words "may", "will", "should", "expects", "plans", "intends", "anticipates", "believes", "estimates", "predicts", "potential", or "continue" and similar expressions identify forward-looking statements. Actual results, performance or events may differ materially from those in such statements due to without limitation, (i) general economic conditions such as performance of financial markets, credit defaults , currency exchange rates , interest rates , persistency levels and frequency / severity of insured loss events (ii) mortality and morbidity levels and trends, (iii) changing levels of competition and general competitive factors, (iv) changes in laws and regulations and in the policies of central banks and/or governments, (v) the impact of acquisitions or reorganization , including related integration issues, and (vi) the susceptibility of our industry and the markets addressed by our, and our customers’, products and services to economic downturns as a result of natural disasters, epidemics, pandemics or other widespread illness, including coronavirus (or COVID-19), and (vii) other risks and uncertainties identified in our public filings with the Securities and Exchange Commission, including those listed under the "Risk Factors" and "Forward-Looking Statements" sections of our Annual Report on Form 20-F for the year ended March 31, 2022. The company assumes no obligation to update any information contained herein.” The company assumes no obligation to update any information contained herein.

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