DRREDDYNSEQ3 FY22February 1, 2022

Dr. Reddy's Laboratories Limited

7,065words
106turns
12analyst exchanges
2executives
Management on call
Amit Agarwal
Head of investor relations. Thank you and over to you.
Erez Israeli
our CEO, Mr. Parag Agarwal – our CFO, and the investor relations
Key numbers — 40 extracted
Rs. 74.39
this section, all the amounts are translated into US dollars at a convenience translation rate of Rs. 74.39 which is the rate as of December 31st 2021. Consolidated revenue for the quarter stood at Rs. 5,32
Rs. 5,320 crore
74.39 which is the rate as of December 31st 2021. Consolidated revenue for the quarter stood at Rs. 5,320 crores, i.e., USD 715 million, and grew by 8% on a year-on-year basis and declined by 8% on a sequentia
715 million
of December 31st 2021. Consolidated revenue for the quarter stood at Rs. 5,320 crores, i.e., USD 715 million, and grew by 8% on a year-on-year basis and declined by 8% on a sequential quarter basis. Year-on
8%
onsolidated revenue for the quarter stood at Rs. 5,320 crores, i.e., USD 715 million, and grew by 8% on a year-on-year basis and declined by 8% on a sequential quarter basis. Year-on-year growth has
53.8%
our proprietary products business. Consolidated gross profit margin for this quarter has been at 53.8% which is flat over previous year. However, the margin increased by 40 basis points on a quarter-o
40 basis point
this quarter has been at 53.8% which is flat over previous year. However, the margin increased by 40 basis points on a quarter-on-quarter basis. Gross margin for the global generics and PSAI were at 57.8% and 2
57.8%
basis points on a quarter-on-quarter basis. Gross margin for the global generics and PSAI were at 57.8% and 22.5% respectively for the quarter. Dr. Reddy's Laboratories Ltd. January 28th, 2022
22.5%
ts on a quarter-on-quarter basis. Gross margin for the global generics and PSAI were at 57.8% and 22.5% respectively for the quarter. Dr. Reddy's Laboratories Ltd. January 28th, 2022 The SG&
Rs. 1,541 crore
er. Dr. Reddy's Laboratories Ltd. January 28th, 2022 The SG&A spend for the quarter is Rs. 1,541 crores, i.e., USD 207 million, an increase of 7% year on year and a decrease of 3% quarter on quarter.
207 million
boratories Ltd. January 28th, 2022 The SG&A spend for the quarter is Rs. 1,541 crores, i.e., USD 207 million, an increase of 7% year on year and a decrease of 3% quarter on quarter. The year-on-year increas
7%
h, 2022 The SG&A spend for the quarter is Rs. 1,541 crores, i.e., USD 207 million, an increase of 7% year on year and a decrease of 3% quarter on quarter. The year-on-year increase is in line with
3%
rter is Rs. 1,541 crores, i.e., USD 207 million, an increase of 7% year on year and a decrease of 3% quarter on quarter. The year-on-year increase is in line with our business growth and on account
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Guidance — 20 items
Amit Agarwal
opening
“This call is being recorded and the playback and transcript will be made available on our website soon.”
Amit Agarwal
opening
“All the discussions and analysis of this call will be based on the IFRS consolidated financial statements.”
Parag Agarwal
opening
“The EBITDA margin for the 9 months in this fiscal is at 24% and it's closely tracking our aspiration target of 25%.”
Parag Agarwal
opening
“We expect our normal ETR to be in the range of 25% to 26%.”
Erez Israeli
opening
“We have grown year on year across our key businesses and both EBITDA and RoCE margins are closer to our aspirational target of 25% each while we continue to invest in our future growth business.”
Erez Israeli
opening
“We expect the performance to improve in the coming quarters.”
Erez Israeli
opening
“Going forward, we are looking to double down our efforts in very critical, important areas of innovation as well as ESG.”
Erez Israeli
qa
“In this respect, let us say the main contribution of this portfolio will be in the second as well as in the fourth, not so much on the third.”
Erez Israeli
qa
“So, I am not so concerned about this thing going forward.”
Erez Israeli
qa
“I believe that the trend is behind us in a way that I do not anticipate additional hike in that magnitude.”
Risks & concerns — 6 flagged
Our North America generic business recorded sales of $248 million for the quarter with a year- on-year growth of 6% however a sequential quarter decline of 2%.
— Erez Israeli
1,154 crore with a strong year-on-year growth of 20%, however, registered a sequential decline of 11%.
— Erez Israeli
1,027 crores with year-over-year growth of 7% and sequential decline of 10%.
— Erez Israeli
Our PSAI business recorded sales of 97 million with year-over-year growth of 2% but sequential quarter decline of 14%.
— Erez Israeli
That's why on the sequential basis when you compare India, that's why there is a decline because it was relatively large contribution during the second quarter but not so much in the third.
— Erez Israeli
this is allowing us more growth with less risk.
— Erez Israeli
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Q&A — 12 exchanges
Q
The first question is, on the US, you have mentioned that the price erosion has been a little bit severe but if we do a back calculation, is it fair to say on a sequential basis, it's somewhere in the high-single to low-double kind of digit price erosion in US for this quarter? Dr. Reddy's Laboratories Ltd. January 28th, 2022
Erez Israeli
I don't think that as a kind of global phenomenon. It continues to be a product-based situation, but in Q4 a relatively a large number of our products faced competition. And if we work on the overall basis, it's more like a double digit. But despite that, we're still growing. We managed to offset this erosion with new products, with market share as well as with productivity activities. This still remains an issue and the growth of about, I think now 9 out of 10 quarters we are growing in the US and this will continue to be a kind of the phenomenon also in the future in which I do see growth, m
Q
Erez, you just mentioned about double-digit price erosion in the US. Could you give us some color on how this is trending in the quarter given it was product specific? Should we see this abating to more normalized price erosion? Any color on that? Dr. Reddy's Laboratories Ltd. January 28th, 2022
Erez Israeli
It should be. I believe that most of the products that faced erosion were already there. The business model that exists in the US will continue as it normally does. The business model will not change, but in terms of the products that were affected by this, I believe that most of the effect is behind us. Just to understand, given we saw a double-digit price erosion in the US, but if you look at our generics' gross margins, they seem to have improved close to about 100 basis points quarter on quarter despite the fact that we had headwinds in terms of raw material cost, etc. What drove this impr
Q
My first question is, can you share your observation around the commodity and raw material price, whether you have seen some kind of moderation compared to the second quarter, and how do you see this part moving up in the next few quarters?
Erez Israeli
Yes, we did see it. We saw it in 3 areas with some commodity intermediates, especially that are serving us in the API. The second is in the energy cost, especially coal a few months ago, especially in India. And the third is on the freight and the shipping cost. All of that we absorbed Dr. Reddy's Laboratories Ltd. January 28th, 2022 within the margins. We counter-measured it with the other activities to offset all that. I believe that the trend is behind us in a way that I do not anticipate additional hike in that magnitude. Some of the prices did not go down yet to the original level, but I
Q
The question is on the peg filgrastim, the pre-filled syringe, which we talked that will be commercializing in Q3 FY22. Can you just update me with the status right now?
Amit Agarwal
Currently, it is with Fresenius. For the US and Europe markets, we have a deal with Fresenius and basically they have guided for calendar 2022 launch. As of now, that's the status. My second question would be a bit odd, but actually I wanted to understand on that part that whenever we launch the product, what is the average duration at which we can command the premiumization compared to when it becomes you can say a normal or pricing product? I don't think we will be able to comment on that part. Dr. Reddy's Laboratories Ltd. January 28th, 2022
Q
Sir, on the pricing erosion situation in the US what you mentioned, is it largely to Dr. Reddy's specific that double-digit kind of price erosion situation? And possibly could be because of more number of Para III launches by you? Is that the situation or it is broad-based, double-digit kind of price erosion that we have witnessed in the US?
Erez Israeli
It's the business model in the United States. So, naturally, every company is facing price erosion. I think the proportion of the price erosion is very much based on how many of your products are facing competition and what is the timing in which the customers are issuing their RFPs. In our case, we launched, let us say in the last 3 years about 80 products in the United States. So, naturally, those products by design will face competition. They are larger in proportion out of the entire basket. That's why percentage per se is less, for me at least, an indicator of the health of the business.
Q
Sir, the first question is on icosapent which is Vascepa in the US. Good job done on the market share gain. I think it's now stabilizing around 11-12% for the last few weeks. Have we reached the peak or what's the outlook over here? And is it the supply that is holding you back?
Erez Israeli
I think that the product is doing well. We are planning to continue to do well also in the next quarters to come. There is still a lot of market share to gain with this product as the innovator is still holding a nice market share. And in terms of supply, it is not constraining us at this stage. Then why is the market share in early double-digit and not much higher if supply is not holding you back? What's the roadblock? The roadblock is the desire of customers to take the product from us. But that's a little counterintuitive because generic is lower priced. So, most of the time, customers are
Q
Thank you for taking my question. The first one is on the PSAI business. In your opening remarks, Erez, you mentioned we expect performance to improve quarter on quarter. What's driving that optimism? I remember last quarter we had the issue of inventory de-stock from some of our customers. Can you help us understand the dynamics in the PSAI business?
Erez Israeli
Sure. If we are taking out COVID-related behavior by companies, the business based on its consumption, the main driver of growth will be the launches that will be in the marketplace of FY23, FY24, and FY25 by the customers, both by internal use as well as external use. And if we use the Pareto, meaning the top products that used to drive this business are going to be changed by products that will be launched in that area, which will be, 1) more profitable, 2) bigger in the size. This will drive the growth on the base API. PSAI is comprised also of our CDMO activities that are slightly picking
Q
Sir, on the Sputnik you said, obviously we have got permission from the government to export. Can you quantify the doses that we are planning to export or we are open to export any amount or there is a restriction?
Erez Israeli
No restriction. I cannot specify now a specific number, but no restrictions that prevents us to export. But these numbers will be reflected in 4th quarter, you believe so? It depends on the type of approval that we will have for the product. For example, if Sputnik Light will be approved eventually as a vaccine and subsequent to that as a booster and subsequent to that as a booster for other products, then we will obtain WHO. If all of this will happen, it can create a nice opportunity for us. And of course, the quantities will be accordingly. So it depends of course on the type of approval th
Q
On pegfilgrastim, we are seeing that the launch can happen in the next one or 2 quarters, but have we supplied any initial inventory to Fresenius Kabi or it will happen once the approvals come around. And I assume that we will also take time, right? If already not supplied?
Erez Israeli
Just to say, as part of the deal, all the rights, all the activities of this product are done by Fresenius, not by us. And therefore, we have just had a certain financial arrangement with Fresenius. Once they will go, we will enjoy a stream of value that will come from their launch. So, we are not supplying and not involved in the launch, and we are not aware of the date. We are going to be advised by them when they will decide to do that.
Q
Just one final question. How are you thinking about your injectable portfolio for the US market? As in how many ANDAs have been filed, and are there any complex long-acting type, microsphere type of product, or peptide type product that you've done the filing, and when can we start to see the approval cycle begin for these?
Erez Israeli
It's naturally very important to us, not just in US but also globally. And the answer is yes, we do have this complex generic asset as part of that effort. Some of it took a long time to develop and in some we are still in development. Overall, the injectable and the complex generic will drive the growth in the United States on the generic path and it will grow faster than the retail product. Very specifically, have you filed some of these high-value complex injectables? We did file some high-value complex injectables, yes. And the PAI done in Duvvada, does it relate to one such product? Some
Q
Taking Sameer's question forward on Duvvada, would you still expect to grow in the US next year if there is an adverse observation on Duvvada from the FDA?
Erez Israeli
First, we hope not to have this adverse effect. And second, we, at this stage, are not looking for scenarios if we don't have the sites. But these sites are very very important for the growth in the United States, not just next year but also in the years to come. Erez, any update on NuvaRing? Internally, have you decided to go ahead with the launch or drop it? We did not finish all the evaluation, but unlikely that you'll see launch in the next few months. Lastly, any update on Copaxone? Still in process. It's now in the FDA court, the ball is in their court, meaning, that we have submitted al
Q
Thank you all for joining us today for the earnings call. In case of any further queries, please reach out to the investor relations team.
Management
Speaking time
Erez Israeli
41
Moderator
14
Sameer Baisiwala
10
Ashish Thavkar
7
Amit Agarwal
6
Kunal Dhamesha
6
Neha Manpuria
5
Damayanti Kerai
4
Shyam Srinivasan
4
Suryanarayanan
3
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Opening remarks
Amit Agarwal
Thank you. A very good morning and good evening to all of you. And thank you for joining us today for the Dr. Reddy's earnings conference call for the quarter ended December 31st, 2021. Earlier during the day, we have released our results, and the same are also posted on our website. This call is being recorded and the playback and transcript will be made available on our website soon. All the discussions and analysis of this call will be based on the IFRS consolidated financial statements. To discuss the business performance and outlook, we have the leadership team of Dr. Reddy's comprising Mr. Erez Israeli – our CEO, Mr. Parag Agarwal – our CFO, and the investor relations team. Please note that today's call is a copyrighted material of Dr. Reddy's and cannot be re- broadcasted or attributed in press or media outlets without the company's expressed written consent. Before I proceed with the call, I would like to remind everyone that the safe harbor contained in today's press release a
Parag Agarwal
Thank you Amit and greetings to everyone. Hope all of you are keeping well. We had yet another quarter of good performance in terms of year-on-year growth in revenues and profits while maintaining a healthy EBITDA margin and generating good cash flows. Let me take you through the key financial highlights for the quarter in a bit more detail. For this section, all the amounts are translated into US dollars at a convenience translation rate of Rs. 74.39 which is the rate as of December 31st 2021. Consolidated revenue for the quarter stood at Rs. 5,320 crores, i.e., USD 715 million, and grew by 8% on a year-on-year basis and declined by 8% on a sequential quarter basis. Year-on-year growth has been supported by growth across most of our businesses and was driven by good base business performance and recent launches. Sequentially however, our revenues were impacted on a higher base of Q2 which had a higher contribution from COVID-related products and recognition of out-licensing income in
Erez Israeli
A good morning and good evening to everyone. I hope you and your family are all safe and healthy. Dr. Reddy's Laboratories Ltd. January 28th, 2022 I am pleased to share that we had a strong financial performance during the quarter without any benefits of one-off or COVID-related sales. We have grown year on year across our key businesses and both EBITDA and RoCE margins are closer to our aspirational target of 25% each while we continue to invest in our future growth business. We have been able to achieve this despite certain industry level headwinds like higher level of price erosion across the generic segment in the US market, increase in commodity prices, and higher freight costs. The sustained performance shows the resilience we have been able to build with a diversified business model to mitigate such external headwinds. We also generated significant cash flow during the quarter and are now having a net cash surplus which will enable us to invest for future growth. Let me take you
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