DRREDDYNSEQ4 FY22May 24, 2022

Dr. Reddy's Laboratories Limited

7,566words
111turns
11analyst exchanges
3executives
Management on call
Amit Agarwal
Head of Investor Relations. Thank you and over to you, sir.
G. V. Prasad
our Co-Chairman and Managing Director; Mr.
Parag Agarwal
our CFO and the Investor Relations team.
Key numbers — 40 extracted
rs,
all these challenges, our team has delivered very good operational results. Over the last few years, we have been able to grow on a consistent basis and the key highlights of this year are healthy re
Rs. 75.87
this section, all the amounts are translated into US dollar at a convenience translation rate of Rs. 75.87 which is the rate as of 31st March 2022. Consolidated revenues for the quarter stood at Rs. 5,437
Rs. 5,437 crore
Rs. 75.87 which is the rate as of 31st March 2022. Consolidated revenues for the quarter stood at Rs. 5,437 crores that is $717 million and grew by 15% on a year-on-year basis and by 2% on a sequential quarter b
717 million
e as of 31st March 2022. Consolidated revenues for the quarter stood at Rs. 5,437 crores that is $717 million and grew by 15% on a year-on-year basis and by 2% on a sequential quarter basis. The growth has
15%
Consolidated revenues for the quarter stood at Rs. 5,437 crores that is $717 million and grew by 15% on a year-on-year basis and by 2% on a sequential quarter basis. The growth has been driven by al
2%
ter stood at Rs. 5,437 crores that is $717 million and grew by 15% on a year-on-year basis and by 2% on a sequential quarter basis. The growth has been driven by all markets in our Global Generics s
Rs. 21,439 crore
egment and divestment of a few non-core brands. The revenues for the financial year 2022 stood at Rs. 21,439 crores that is $2.83 billion and grew by 13%. The growth was supported by improvement in the base busin
2.83 billion
few non-core brands. The revenues for the financial year 2022 stood at Rs. 21,439 crores that is $2.83 billion and grew by 13%. The growth was supported by improvement in the base business volumes and new pro
13%
revenues for the financial year 2022 stood at Rs. 21,439 crores that is $2.83 billion and grew by 13%. The growth was supported by improvement in the base business volumes and new product launches.
52.9%
ness volumes and new product launches. Consolidated gross profit margin for this quarter has been 52.9%, a decline of 50 basis points year-on-year and 90 bps on a quarter-on-quarter basis. While the gr
50 basis point
product launches. Consolidated gross profit margin for this quarter has been 52.9%, a decline of 50 basis points year-on-year and 90 bps on a quarter-on-quarter basis. While the gross margin benefited from bra
90 bps
ross profit margin for this quarter has been 52.9%, a decline of 50 basis points year-on-year and 90 bps on a quarter-on-quarter basis. While the gross margin benefited from brand divestments income, th
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Guidance — 20 items
Amit Agarwal
opening
“All the discussions and analysis of this call will be based on the IFRS consolidated financial statements.”
G. V. Prasad
opening
“Our priorities for FY 2023 will be to strengthen our product pipeline across markets, focus on enhancing our quality systems, continue with the productivity agenda and make value accretive inorganic moves.”
Parag Agarwal
opening
“EBITDA margin for the year is at 24.0% and is closely tracking our aspirational target of 25%.”
Parag Agarwal
opening
“We expect our normal ETR to be in the range of 24% to 26%.”
Erez Israeli
opening
“We expect the launch momentum to further improve in FY23.”
Erez Israeli
opening
“We expect this strong growth momentum to continue in FY23.”
Erez Israeli
opening
“This strong performance in Russia was partially led by divestment income of two brands and higher Q4 sales on account of stocking up which we expect to normalize during the coming quarter.”
Erez Israeli
opening
“While the number of product filings in the current year has been slightly lower, however, we are on track to accelerate this in FY23.”
Erez Israeli
opening
“In the coming month, we will be holding our Investor Day and take you through the growth levers for Horizon-I, Horizon-II and our approach and goals towards ESG.”
Ankush
qa
“And how many new products that we are looking to launch next year?”
Risks & concerns — 14 flagged
Consolidated gross profit margin for this quarter has been 52.9%, a decline of 50 basis points year-on-year and 90 bps on a quarter-on-quarter basis.
— Parag Agarwal
While the gross margin benefited from brand divestments income, the decline was primarily attributable to pricing pressure in North America and Europe, combined with the effect of increase in commodity prices.
— Parag Agarwal
Gross margin for FY22 has been 53.1% which is a decline of 120 basis points over FY21.
— Parag Agarwal
The ETR was higher due to an impact of impairment charges taken.
— Parag Agarwal
We have revisited our strategy to cater to the new opportunities and mitigate risk.
— Erez Israeli
We are able also to grow market share for many of our existing products which helped to partially mitigate the impact of the price erosion.
— Erez Israeli
969 crores with a year-over-year growth of 15% and a sequential decline of 6%.
— Erez Israeli
Our PSAI business recorded sales of $100 million with a year-over-year decline of 8% and sequential growth of 3%.
— Erez Israeli
On a full year basis, the sales were $411 million with a decline of 5%.
— Erez Israeli
However, I am confident that we will emerge stronger with every challenge.
— Erez Israeli
A good amount of this growth came from COVID, but even after excluding the impact of COVID portfolio, both these markets still recorded double-digit growth.
— Parag Agarwal
And then, one final question is for the US market, just now in one of the earnings calls concluded for one of your peers, this question was asked, I am just repeating that question again; progressively, quarter-on-quarter we have seen the margins and the return ratios getting depressed in the US market and now with the added pressure of cost inflation, any color can you give as to tell what time can this pain continue before rationality kicks in?
— Nikhil Mathur
Because if I am not wrong, this has contributed significantly in terms of out-licensing which has flown down from gross margin to EBITDA and has contributed significantly at the margins, correct me if I am wrong and it is not in future then, given your commentary on raw material prices and etc., cost inflation, this would be an extra margin pressure point for us, would that be correct?
— Prakash Agarwal
And secondly, Parag, in the press release you have called out for the gross margin pressure, some amount of inventory provisions, can you just give us some sense on what would have been the quantum of these inventory provisions that would have hurt your EBITDA margin, the gross margin this quarter?
— Nitin Agarwal
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Q&A — 11 exchanges
Q
Sir, my question is about the US business, so how much of the sale is contributed by the new launches for FY22 and last year?
Erez Israeli
So, the growth is assessed by two factors: one, our new products and I noted two of them Icosapent and Vasopressin as well as a growth in market share of existing products and both of them contribute significantly to the growth. So, can I say that it is a $1,000 million sales in the US market for the full year that the new launches has contributed, how much sales new launches has contributed, if you quantify, sir? And how many new products that we are looking to launch next year? So, overall, as you know, the price erosion in the US business is in double digits and that is more than offset by
Q
So, the first question is related to the COVID contribution for FY22, if you can give a broader idea, what contribution in terms of revenue was from the COVID or related products, especially on India side and emerging market side?
Parag Agarwal
So, the contribution, as you know, both India and emerging markets have grown this year in strong double digits. A good amount of this growth came from COVID, but even after excluding the impact of COVID portfolio, both these markets still recorded double-digit growth. So, overall, I would say, for the company as a whole, the contribution of COVID product sales overall is less than 4%. And for the India market, barring the inorganic activity which is when it happens it happens, what is our organic growth target for FY23? And if you can just broadly give the growth drivers in terms of pricing,
Q
Erez, on the emerging market business; one, if I were to look at emerging markets ex Russia and Ukraine, that seems to have come off significantly for what we were doing in the first 3 quarters, I understand there is some amount of COVID contribution, is it fair to assume that the run rate that you have done in this quarter is the base on which we will grow? Or is there any one-off or deferment of shipment that we should keep in mind?
Erez Israeli
No one-offs in those markets. These markets are growing very well and we will continue to grow in that level. Just if you recall, we discussed our part of the strategy is to take our portfolio globally. EM is actually doing it well, especially on the injectable side. So, the EM will continue to grow, including smaller markets based on the leverage of that portfolio as well as local brands, but primarily the leverage. This indeed a nice contributor to the growth. And on Russia, normalizing for the stocking up that we would have seen in the quarter, in the recent weeks have you seen any change i
Q
Sir, first question is on the cost front, so despite all the challenges what we have seen, we have managed to deliver strong gross margins and all that, so going ahead given what you see, do you think any cost challenges that we will be facing incrementally given the supply shortness that is likely to be seen given the Chinese lockdown and all that? That is one and secondly, you have talked about the Phase-1 growth what we have already seen and you are designing and devising a Phase-2 kind of growth sales for Dr. Reddy with new product launches and specialty offerings and all that, so whether
Erez Israeli
So, like everybody else in the industry, we are facing some increase of cost, whether it is commodity prices as well as in things that are related to logistics, transportation and stuff like that and it is unfortunately not the first quarter that we see that it is something that has gradually built up since COVID, but we absolutely saw intensifying situation like that also recently. We were able to mitigate most of it by, first of all, having a very effective supply chain, so we are not dependent on any specific territories or whether it is geography or specific vendors and we are able to main
Q
So, my first question is around the Russian market, in line with the global sanctions that the West applied on Russia, we came across many media articles in which many global innovator companies, they are either withdrawing from Russian market or they are curtailing their operations there, so have you had any discussions with the procurement ecosystem in the Russian market that this could be a fairly structured and substantial opportunity for Dr. Reddy's given your legacy presence in the market? Obviously, there are challenges currently but still, I mean, could this emerge as a long- term thre
Erez Israeli
So, we do see that as an opportunity for us. We cannot discuss now any specific discussions, but it is absolutely one of the avenues that we are discussing as we speak. And second question is on the broader US outlook, so two questions related to the US, one is on the opportunity in the next 3 years, excluding Revlimid, how do you see the addressable opportunity in terms of brands losing exclusivity next year versus the preceding period? Without Revlimid, we do see it in the same way that we saw this year. We have, in addition to that, as Parag mentioned 20-25 new launches which will not be as
Q
A couple of questions, sir, first, on the COVID-related products, you mentioned this 4% contribution, but is there any write-offs which we might have taken at the inventory level in the full year or the quarter?
Parag Agarwal
Any inventory provisions relating to COVID, there are some write-offs, but they are not significant overall and the overall inventory levels we are carrying for our COVID products are also not material. We have obviously stocked up adequately to meet any potential demand, but the overall levels are not material. When you say not material, I would understand it would be under 1%. I wouldn't put a number to it. It is not material in the overall context of our business. We will not confirm or deny it. And secondly, on the proprietary business that we have built over years, I understand most of th
Q
Sir, most of my questions have been asked but just a couple of them more. One is, what is the current exposure to Ukraine market? And are we holding any receivables over there?
Erez Israeli
So, the level of exposure is not material and there is no any material adverse event or significant adverse events that we anticipate in the future. And Erez, you mentioned a couple of times that for the US market, you are putting in some effort outside of the generic business, so can you elaborate on that? Was it the NCE effort or is it something else? We will elaborate more in the Investor Day, but we are, as we speak, exploring other channels that are not exposed to the current business model in the United States, of course, high level of price erosion that needs to be mitigated by products
Q
With respect to the two brands that you divested in Russia and CIS, Ciprolet and Levolet, can you share what is their contribution since sales from these brands would not recur going forward?
Parag Agarwal
Sorry, I couldn't catch the question. What is the contribution of the divestment in Russia, Levolet and Ciprolet, Sales of these brands. That would be about Rs. 50 crores to Rs. 60 crores per annum. And even without these brands coming in, contributing next year you would grow double digit in these markets? Yes. And just one more on Rituxan biosimilar. Two things; one, when do you expect to file that? And second, whether you are trying to do an interchangeable on that? Rituximab filing timeline. So we are looking for Rituximab as a potential 2024 event. I am talking about calendar 2024. And ar
Q
Sir, my question is one on Voveran, what opportunities do we see on this product given the fact that this molecule has been under some growth pressures in the past?
Parag Agarwal
Which molecule? Voveran that we acquired from Novartis for the Indian market? So, we see that as an important opportunity for us. At first, we will repatriate it to our Indian facility and we believe that our cost structure will allow us to be competitive. And the second, it is an area of focus for us, the diabetics as well as cardiovascular, the area of chronic, the segment of disease was always a focus for us and this is an opportunity to bring a familiar brand to the physicians that we are visiting anyway and we believe that our margins will enable us to even grow these molecules in the fut
Q
Most of my questions are answered, just a follow-up on Russia, so could you make a few comments about how the business has changed before the war started and after that, especially in terms of logistics, payment, etc., so are you able to get products across into Russia? And how are you managing the payments, mechanism out of Russia, etc.?
Erez Israeli
So, let us start with the basic. We are shipping products to Russia and we are getting money from Russia and the logistics within Russia is similar to what was before. We had to adjust our channels, the airlines or other logistics means to shift to Russia, but we do not see any issues with that, we have done all consolidations for that and as for the payment and the stuff like that, actually we saw no disruption as we speak. In terms of within the market, we are not aware of anyone that actually left the market, probably there will be less investment in the market, but we are not aware of anyo
Q
Thank you everyone for joining us today for the earnings call. In case of any further questions, please get in touch with the Investor Relations team. Thank you.
Management
Speaking time
Erez Israeli
30
Parag Agarwal
14
Moderator
12
Prakash Agarwal
10
Amit Agarwal
7
Vishal Manchanda
7
Ankush
4
Kunal Dhamesha
4
Neha Manpuria
4
Nikhil Mathur
4
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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 and full year ended March 31, 2022. 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 transcripts shall 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. G. V. Prasad – our Co-Chairman and Managing Director; 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 rebroadcasted or attributed in press or media outlet without the company's expressed written consent. Before I proceed with the call, I would like to remind ev
G. V. Prasad
Thank you, Amit. Good evening and good morning and welcome to all of you to this earnings call. Fiscal 2022 has been quite a challenging year. It started with the severe wave of COVID in India and ended with heightened geopolitical conflicts, inflationary environment and economic crisis in certain parts of the world. I am proud that despite all these challenges, our team has delivered very good operational results. Over the last few years, we have been able to grow on a consistent basis and the key highlights of this year are healthy revenue growth with steady margins, good progress on the productivity journey, some meaningful launches of products across markets, enhanced offering of the much-needed COVID products and closure of a few significant business development deals. Our priorities for FY 2023 will be to strengthen our product pipeline across markets, focus on enhancing our quality systems, continue with the productivity agenda and make value accretive inorganic moves. While we
Parag Agarwal
Thank you Prasad and greetings to everyone. Hope all of you are keeping well. I am pleased to take you through our results for the quarter 4 and full year of fiscal 2022. It is yet another year of good financial performance with growth in sales and EBITDA and a strong cash flow generation from operations. While we faced several headwinds during the year, we mitigated these through productivity initiatives and a few one-time opportunities. Let me take you through the key financial highlights for the quarter and FY22 in a bit more detail. For this section, all the amounts are translated into US dollar at a convenience translation rate of Rs. 75.87 which is the rate as of 31st March 2022. Consolidated revenues for the quarter stood at Rs. 5,437 crores that is $717 million and grew by 15% on a year-on-year basis and by 2% on a sequential quarter basis. The growth has been driven by all markets in our Global Generics segment and divestment of a few non-core brands. The revenues for the fina
Erez Israeli
Thank you, Parag. Good morning and good evening to everyone. As Prasad highlighted, the FY22 has been quite a challenging year, yet it is being fulfilling. We rose to the challenges and have been able to deliver a steady and sustained performance. We have revisited our strategy to cater to the new opportunities and mitigate risk. Our financial strength of strong balance sheet creates an opportunity for us to grow in the current business environment. Let me take you through some of the key highlights of the year. 1. Strong growth across branded markets of India and emerging markets, 2. Steady growth across generics market, we regained milestone revenue of $1 billion in North America generics, 3. Improved market share in most of our major markets, 4. EBITDA and ROCE in the range of our aspirational targets, 5. Generation of strong free cash flow leading to a net surplus of more than $200 million, 6. Entered high-growth space of medical cannabis business in Germany through acquisition of
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