Dr. Reddy's Q3 & 9M FY24 Financial Results

Dr. Reddy's Laboratories Ltd. (BSE: 500124 | NSE: DRREDDY | NYSE: RDY | NSEIFSC: DRREDDY) today announced its consolidated financial results for the quarter and nine months ended December 31, 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 highest-ever sales and robust financial performance aided by new products performance and base business market share gain in the U.S., new products launch momentum and strong performance in Europe. We continue to strengthen our core businesses and invest in innovative products including strategic collaborations for novel molecules to meet unmet needs of patients."

All amounts in millions, except EPS
All US dollar amounts based on convenience translation rate of 1 USD = Rs. 83.19

Dr. Reddy's Laboratories Limited & Subsidiaries

Key Business Highlights [Q3FY24]

• Acquired the MenoLabs branded portfolio of women's health focused supplements in the U.S.
• Exclusive collaboration with Coya Therapeutics for development and commercialization of COYA 302, an Investigational Combination Therapy for treatment of Amyotrophic Lateral Sclerosis (ALS)
• Inspections completed by U.S. FDA at Bachupally facility. The response to the observations were submitted within stipulated timelines.
  • Product specific Pre-Approval Inspection (PAI) at biologics manufacturing facility in October 2023, post which a Form 483 with 9 observations was issued,
  • Routine cGMP inspection at formulations manufacturing facility (FTO-3) in October 2023, post which a Form 483 with 10 observations was issued and
  • GMP and Pre-Approval Inspection (PAI) at R&D unit in December 2023, post which a Form 483 with 3 observations was issued.

ESG & other Highlights [Q3FY24]

• 1st Indian pharma company to be featured in the Dow Jones Sustainability World Index for 2023 and retaining our place in the Emerging Markets Index for the 8^th year in a row.
• Awarded ?Gold Medal' status by EcoVadis.
• MSCI ESG ratings upgraded from BB to BBB
• Awarded Golden Peacock awards for Corporate Social Responsibility, 2023 and Excellence in Corporate Governance, 2023
• Received ICSI Corporate Social Responsibility Excellence award - 2023, in recognition of our contribution to society through our CSR initiatives.
• 1^st Indian pharma company to pledge towards a plantation initiative covering 2,900 hectares by 2028 as part of the World Economic Forum's 1t.org.

Revenue Analysis [Q3FY24]

• Q3FY24 consolidated revenue at Rs. 72.1 billion, YoY growth of 7% and QoQ growth of 5%. The YoY growth was primarily driven by market share gains for our existing products in North America and continuation of our growth journey in Europe.

Global Generics (GG)

• Q3FY24 revenue at Rs. 63.1 billion, YoY growth of 7% and QoQ growth of 3%. YoY growth was primarily driven by increase in volumes of our base business, new product launches, partially offset by price erosion in certain markets. Sequential growth was driven by increase in volumes of our base business, offset partially due to price erosion in certain markets.

North America

• Q3FY24 revenue at Rs. 33.5 billion, YoY growth of 9% and QoQ growth of 5%. YoY growth was on account of market share expansion in certain existing key products and revenues from new product launches, partly offset by price erosion. Sequential growth was driven by net increase in volumes of our base business.
• During the quarter, we launched 4 new products in the region, of which 2 were launched in the U.S.
• During the quarter, we filed 2 new Abbreviated New Drug Applications (ANDAs) with the US Food and Drug Administration (USFDA). As of 31^st December 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 generic filings, 41 are Para IVs, and we believe 21 have ?First to File' status.

Europe

• Q3FY24 revenue at Rs. 5.0 billion, YoY growth of 15% and QoQ decline of 6%. YoY growth was primarily on account of contribution from new product launches, improvement in base business volumes and favourable currency exchange rate movements, partly offset by price erosion. QoQ decline was primarily on account of price erosion in certain countries, partly offset by increase in volumes of our base business.
  • Germany at Rs. 2.7 billion, YoY growth of 21% and QoQ growth of 0.1%.
  • UK/OL at Rs. 1.4 billion, YoY growth of 9% and QoQ decline of 22%.
  • Rest of Europe at Rs. 0.9 billion, YoY growth of 11% and QoQ growth of 7%.
• During the quarter, we launched 6 new products in the region.

India

• Q3FY24 revenue at Rs. 11.8 billion, YoY growth of 5% and QoQ decline of 1%. YoY growth was largely attributable to revenues from new products launches while QoQ decline was largely on lower volumes in base business.
• During the quarter, we launched 3 new brands in the country.

Emerging Markets

• Q3FY24 revenue at Rs. 12.8 billion, YoY decline of 2% and QoQ growth of 6%. YoY decline is attributable to unfavorable forex movement, while QoQ growth was driven by volume gains for few existing products and partially offset by unfavorable currency exchange rate movements.
  • Revenue from Russia at Rs. 5.9 billion, YoY decline of 14% and QoQ growth of 2%.
    YoY decline was majorly due to unfavorable currency exchange rate movements & high base business.
    QoQ growth was largely on account of improved volumes and increase in certain brand prices, partially offset by unfavorable currency exchange rate movements.
  • Revenue from other CIS countries and Romania at Rs. 2.3 billion, YoY growth of 4% and QoQ growth of 7%.
    YoY growth was primarily on account of increase in price of certain brands, new product launches and favorable forex.
    QoQ growth was driven by increase in base business volumes and new launches.
  • Revenue from Rest of World (RoW) territories at Rs. 4.6 billion, YoY growth of 16% and QoQ growth of 10%.
    YoY growth was largely attributable to contribution from new products.
    QoQ growth was primarily driven by increase in base business volumes and new product launches.

Pharmaceutical Services and Active Ingredients (PSAI)

• Q3FY24 revenue at Rs. 7.8 billion, with a growth of 1% YoY and 11% QoQ. YoY growth was mainly driven by revenues from new products, favourable forex, partially offset by price decline and low business volumes. QoQ growth was driven by improved volumes in base business and contributions from new product launches. Excluding revenue in base period from COVID-19 products, PSAI business grew in double-digit.
• During the quarter, we filed 38 Drug Master Files (DMFs) globally.

Income Statement Highlights:

• Q3FY24 gross margin at 58.5% (GG: 61.9%, PSAI: 29.4%). Gross margin decreased by ~73 bps YoY and 18 bps sequentially. The decline in margin was primarily driven by lower prices for certain products in generic markets, partly offset by improvement in product mix and productivity.
• Selling, general & administrative (SG&A) expenses for Q3FY24 at Rs. 20.2 billion, YoY increase of 12% and by 8% QoQ. The YoY SG&A spend increase is largely on account of investments in sales & marketing activities, digitalization capabilities, and new business initiatives.
• Research & development (R&D) expenses in Q3FY24 at Rs. 5.6 billion. As % to Revenues ? Q3FY24: 7.7% | Q2FY24: 7.9% | Q3FY23: 7.1%. 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 Q3FY24 at Rs. 0.9 billion compared to other operating expenses of Rs. 0.7 billion in Q3FY23. Other operating income was largely on account of sale of non-current assets.
• Net Finance income for Q3FY24 at Rs.0.9 billion compared to net finance expense of Rs. 0.1 billion in Q3FY23. The higher income was primarily on account of profit on sale of units of mutual funds and other investments.
• Profit before Tax for Q3FY24 at Rs. 18.3 billion, YoY growth of 12%. QoQ decline of 5%.
• Profit after Tax for Q3FY24 at Rs. 13.8 billion, YoY growth of 11%. QoQ decline of 7%. The effective tax rate for the quarter has been 24.5% as compared to 23.7% in Q3FY23. The higher tax rate is mainly due to increase in the proportion of the Company's profits coming from higher tax jurisdictions, partly offset by adoption of corporate tax rate under section 115BAA of the Income Tax Act of India.
• Diluted earnings per share for Q3FY24 is Rs. 82.68

Other Highlights:

• EBITDA for Q3FY24 at Rs. 21.1 billion and the EBITDA margin is 29.3%.
• Operating Working Capital at Rs. 108.1 billion.
• Capital expenditure for Q3FY24 at Rs. 3.1 billion.
• Free cash-flow for Q3FY24 at Rs. 0.2 billion.
• Net cash surplus at Rs. 59.1 billion as on December 31, 2023.
• Debt to Equity is (0.21).
• ROCE for the company is 37% (annualized).

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

Computation of EBITDA

Refer page no. 3 & 4.

Earnings Call Details

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

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 February 6^th, 2024. For play back dial in phone No: +91 22 7194 5757, and Playback Code is 61003.

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, 2023. The company assumes no obligation to update any information contained herein." The company assumes no obligation to update any information contained herein.