DRREDDYNSEQ1 FY24July 31, 2023

Dr. Reddy's Laboratories Limited

7,904words
107turns
13analyst exchanges
1executives
Management on call
Parag Agarwal. Over to you Parag. Parag Agarwal
Thank you, Richa. Greetings to everyone! A warm welcome
Key numbers — 40 extracted
Rs. 82.06
this section, all the amounts are translated into US dollar at a convenience translation rate of Rs. 82.06 which is the rate as of 30th June 2023. Consolidated revenues for the quarter stood at Rs. 6,738
Rs. 6,738 crore
s. 82.06 which is the rate as of 30th June 2023. Consolidated revenues for the quarter stood at Rs. 6,738 crores, that is $ 821 million and grew by 29% on YoY basis and by 7% on a sequential quarter basis. Adj
821 million
s of 30th June 2023. Consolidated revenues for the quarter stood at Rs. 6,738 crores, that is $ 821 million and grew by 29% on YoY basis and by 7% on a sequential quarter basis. Adjusted for brand divestme
29%
onsolidated revenues for the quarter stood at Rs. 6,738 crores, that is $ 821 million and grew by 29% on YoY basis and by 7% on a sequential quarter basis. Adjusted for brand divestment income on a r
7%
the quarter stood at Rs. 6,738 crores, that is $ 821 million and grew by 29% on YoY basis and by 7% on a sequential quarter basis. Adjusted for brand divestment income on a re-based comparator; the
35%
djusted for brand divestment income on a re-based comparator; the underlying growth was higher at 35% on YoY basis and 12% sequentially. The growth was driven by the generics business mainly in US, E
12%
tment income on a re-based comparator; the underlying growth was higher at 35% on YoY basis and 12% sequentially. The growth was driven by the generics business mainly in US, Emerging Markets & Eur
58.7%
gistered a high single digit growth. Consolidated gross profit margin for this quarter has been 58.7%, an increase of ~880 bps over previous year and 150 bps over previous quarter. The improvement in
880 bps
digit growth. Consolidated gross profit margin for this quarter has been 58.7%, an increase of ~880 bps over previous year and 150 bps over previous quarter. The improvement in gross margin was prima
150 bps
oss profit margin for this quarter has been 58.7%, an increase of ~880 bps over previous year and 150 bps over previous quarter. The improvement in gross margin was primarily driven by favorable product
63.9%
d divestment income during previous period. Gross margin for the Global generics and PSAI were at 63.9% and 15.0% for the quarter respectively. The SG&A spend for the quarter is Rs. 1,770 crores, which
15.0%
nt income during previous period. Gross margin for the Global generics and PSAI were at 63.9% and 15.0% for the quarter respectively. The SG&A spend for the quarter is Rs. 1,770 crores, which is $ 216
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Guidance — 20 items
Richa Periwal
opening
“All the discussions and analysis of this call will be based on the IFRS consolidated financial statements.”
Parag Agarwal
opening
“We expect our ETR to be in the range of 24% to 25%.”
Erez Israeli
opening
“Through this initiative, we will be increasing our participation in Retail Pharmaceutical market.”
Erez Israeli
opening
“We launched 8 new products during the quarter and expect the launch momentum to continue during FY 24.”
Erez Israeli
opening
“We launched 10 new products during the quarter and expect the launch impetus to continue during balance of the year.”
Erez Israeli
opening
“We have signed 2 innovative deals in this quarter and expect these to be an important growth driver in the years ahead.”
Erez Israeli
opening
“We expect sales to improve over the next couple of quarters on the back of increasing volume pickup, launch of new products and collaboration opportunities.”
Erez Israeli
opening
“We have filed 4 ANDAs in US during Q1FY24 and we are on track to accelerate on this in balance of year FY 24.”
Erez Israeli
qa
“We are working on about 11 biosimilars, as we speak, in that -- some will be launched before 2030 and some after 2030, starting probably in the beginning of 2027.”
Erez Israeli
qa
“But, let's say, in the next coming quarters as long as we have this limited volume agreement in place, likely that it will be above the threshold, the 25%.”
Risks & concerns — 7 flagged
1,770 crores, which is $ 216 million, an increase by 14% YoY while a decline of 2% QoQ.
— Parag Agarwal
Our PSAI business recorded sales of $82 million with a YoY decline of 11% and a sequential decline of 14%.
— Erez Israeli
There is also impact of a low base in the growth that we have reported this quarter.
— Parag Agarwal
And as you know, by its very nature, Russian market is volatile.
— Parag Agarwal
One, some of the branded generics will have a headwind in the future either because of the trade generic, either because of the digital channels, there will be certain level of potential switches also.
— Erez Israeli
Acquisition, I'm happy to do with a reasonable price, with a reasonable risk, but we are not building on it.
— Erez Israeli
And secondly, at the time of Analyst Day, you talked about new horizon initiative, Horizon 2 initiatives having an impact of 1,500 basis points on your EBITDA margin.
— Saion Mukherjee
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Q&A — 13 exchanges
Q
Congratulations on the good set of numbers. First, on the US revenue growth. So, on a sequential basis, we have seen a significant uptick as well. Would you be able to give us some colour as to which were the primary driver, was it the acquisition, was it the Lenalidomide uptake in order of their quantum, if you can provide, even qualitatively would be very helpful?
Erez Israeli
Yes. So, this quarter, we had several growth engines. So, it's not just Lenalidomide. We grew market share in key products. This was, let's say, more than previous quarters. We saw relatively less price erosion that we normally do. We had the Mayne acquisition that contribute to that, and Lena. So, it's a combination of all of them. Even without Lena, it was a very healthy growth in the US. Sure. And just continuing on that, in terms of price erosion, I think across companies, there is now consensus that the price erosion has reduced. But do you see that, this reduced price erosion to continue
Q
Continuing on the US business. So Erez, you mentioned even without Lena, the base business has grown very well for you sequentially. So, can you elaborate a bit more, whether you're seeing a lot of supply opportunities emerging in the market due to problems at some of the competitors, etcetera? And do you believe these opportunities will sustain for next few quarters? That's my first question.
Erez Israeli
So it's a combination of timing of RFPs, combination of set of situation that happen to products in which we could supply more, not necessarily a supply shortage, but it could be service or other supply disruption situation that happens, and also activities that we did with certain customers as well. So overall, let's say, it's primarily volume-based growth that's based on the agreements that we have with customers. And do you believe this volume-based growth opportunity will continue at least in near term? I believe that the trends will continue. Yes. Okay. My second question is on your R&D i
Q
This is Mikaela on for Balaji. Can you just talk a bit more about what led to the growth seen in Russia and how sustainable this growth is? Thanks.
Erez Israeli
We -- in Russia, we grew, part of it is seasonal. We have most of our businesses in the retail, and we are also playing in the biosimilars. So, in this specific quarter, we enjoyed the seasonality of the allergy as part of it as well as the growth of the big brands there. We -- I believe that the growth momentum will be in Russia. We are expecting a good year in that respect. We are also, so far hedged well on the ruble and protected it well. So, in that respect, the combination of investing in our brands and enjoyed the growth momentum that comes from the relevant products that we have, plus
Q
Yes. Congratulations for the great set of numbers, sir. Sir, my first question is on this Mayne's portfolio that has been acquired. So, what is the kind of size that we would have seen this quarter out of that? And also, if you can give some clarity about the profitability of this portfolio? I'm asking this question because it looks like excluding the Revlimid performance, your base business has seen a sequential improvement. So, from that angle, I was just trying to understand the contribution from the acquired operation in the US and its profitability versus the company's blended base busine
Erez Israeli
So indeed, our base business did well even without Lenalidomide. Mayne, we closed the deal. In practical, it started to sell in the end of April. And we are actually launching product after product through this period of time. I believe that the main pickup will be in the next coming months, when customers will open their bids and we will be able to bid more. So overall, let's say, that the contribution of Mayne will be more significant in next quarters to come than it came in this quarter. Okay. So, is it kind of still a USD100 million annualized size, sir? Yes, in that range. Okay. Sure. Sir
Q
My first question is on the India business. If I look at the number that we reported in fourth quarter and strip out the brand divestment, based on that, we've seen a pretty sharp increase on that base in the first quarter. Did the trade generic -- I know we officially announced the launch in July. But was there any contribution at all of the trade generic business in the first quarter or if you could give us some colour in terms of what's driving the improvement that we're seeing and how much more can this continue to -- I know you talked about a bunch of initiatives, but how should we look a
Erez Israeli
Yes. Thank you for that. The trade generic did not yet contribute much because we just recently launched it. And so, most of the growth happened from our branded generics, our key brands that we are focusing on. These trends are likely to continue also throughout the year and actually going to improve. The activities I mentioned, and we discussed in quite a few occasions on our journey for top five, it's a combination of both the innovation as well as the investment in the portfolio that we have, including the trade. So, most of the deals that we signed and going to be signed -- we have actual
Q
Yes. Congratulations on a great set of numbers. Bringing question back to India, you mentioned about the innovative products, two products that you have signed for India. You mentioned about mother and child. You spoke about gummies. So, if -- and the generic division. So, what kind of investment are we envisaging in all these three different categories that we are talking, which is consumer health, generic-generic business and getting the in-licensed product? And in what range should we see this over the coming two years to three years?
Erez Israeli
So, we are not going to see more investment than what you see already, and like Parag just alluded maybe a slight up. The -- some of it is what we call balance sheet money, meaning that we will sign a deal or acquire a product and it will be a balance sheet move rather than P&L move. So, it's relatively to -- relatively, it's not expensive or not expensive or not going to require much and I'll try to explain why. Most of the startups, we bring to India is a late-stage innovation, means the product is already there. The product also proved itself in other markets, in most of the cases, it's got
Q
Yes. Particularly on the trade receivables as I see, there has been a good jump of almost INR400 crores, INR450 crores, both year-over-year or even quarter-over-quarter. Is this more or less linked to North America business? And is this more to fill up the channel and so the sales could moderate to some extent in the coming quarters?
Parag Agarwal
The increase in receivables is broadly in line with the growth in business and the normal fluctuations that we see depending on the timing of supply and the credit terms. So, there's nothing unusual and it's in line with the business growth. Okay. And secondly, on the overall gross margin we use to guide for, at least, in the past before Revlimid in the range of 52% to 55% for the base business. And since launch of Revlimid, we've seen good, at least 250 bps to 300 bps improvement in the gross margin. So, if you could just indicate the gross margin guidance for say '24? So yes. See, first of a
Q
Good evening and thank you for taking my question. I am just looking at the sales mix for the quarter, when I look at it, 47% of revenues coming from the U.S. currently, 17% from India. I remember we had some kind of an aspirational goal to narrow this overtime, but we seem to have gone the other way. I know there is a lenalidomide there, which is probably skewing things. But Erez, just your broad guidelines of a more diversified geographic mix and I'm a little also confused with the India strategy because we keep divesting things, right, like the Eris Lifesciences or the JB Pharma. So, how do
Erez Israeli
No, sure. Thank you so much for the question. Indeed, lenalidomide make the U.S. obviously in proportion more than before. And I reiterate our commitment to the India market actually being a very important market for us and also reiterate the aspiration to be top 5. Now how should we go to the top 5 is not because we're going to guide number 6. I wish I could, but it's -- first, it's not available, and second, it's so expensive. And I don't think our shareholder want us to do that. The way to do that for us is by launching innovation. So, we are -- we saw that in India there are two trends tha
Q
So, if you can talk about what's the revenue base in China currently and you mentioned about the significant growth from FY '25 onwards. So, I understand you're getting like 10 to 15 approvals per year now. So, from a 3-year perspective with 30 products, 40 products added to your basket in China, how should we think about revenue in China in 3 years' time and how does like per product revenue potential you see in China versus, let's say, in U.S.? So, I'm wondering can it be like USD200 million, USD300 million more in revenues in China? If you can give some colour on how should we think about t
Erez Israeli
So, I see any number of around 2x in the next three years. So, this is the time. The baseline that we are talking, but I'm talking now in market share, has not been necessarily the way we report, is around USD180 million a year. Okay. So Erez, it means like additional 180 million is what you would book, let's say, three years down the line is a fair number to look at in China? If it’s in this range, it could be even more. Understood. Okay. And, Parag, my second question would be around R&D, I think you mentioned run rate of around INR500 crores a quarter, right? Is it possible for you to sort
Q
Good evening and congrats on a great set of numbers. Just a couple of questions. One on Regadenoson could you please help us understand the competitive landscape there? I know a couple of them -- couple of you guys have launched, but there are more approvals or how many competitors out there in the market right now?
Richa Periwal
So, for Regadenoson, it's a multiplayer product, right? We've launched it in April, and we've seen good progression in terms of our market share. We are happy with the way things are progressing for us. Okay. And any update on your products which you have out licensed, that is Pegfilgrastim and the novel product E-7777, any updates regarding timelines? So, on the first one, it was already launched. And so, whatever is the considerations will come, of course, with the progression of several of these products. And as for E-7777 likely that in the next quarter or the third quarter, depends, it wo
Q
Thank you sir for providing me the opportunity and congrats for good set of numbers. Sir, this is the extension of the question that our base business is improving, and it seems from the number that our base business in the U.S. market and that has improved a lot. Can we say, sir, a high single-digit growth Q-o-Q in the base business? And I would like to really appreciate if you tell us that what are the factors behind that the base business is improving? What is happening in the U.S. market, sir, at this time in the generic?
Erez Israeli
So, I mentioned part of it is timing of RFPs, agreement with customers, shortage of some products and relatively lower than normal price erosion on the base. So, it's a combination of all of it. And can we expect this trend will continue? It should. Yes. So, this quarter, sir, there is a high single-digit growth Q-on-Q on base business? I would just say that it is healthy growth. Even after excluding Lena as well as Mayne, it is healthy growth. Yes. Thank you, sir. Thank you very much.
Q
Hi, thank you for the opportunity again. So, just coming back to the in-licensing opportunities for the India market or the innovation that we have talked about. How does those opportunity fit into our 25% framework for EBITDA margin and ROC? Are they accretive, neutral or would you say dilutive?
Erez Israeli
We -- that's absolutely part of it. So, we should reach those margins with the investment, it means it's including. That's why right now we have that, and we have even higher margins in this. And I used the 25% always as a kind of benchmark of where is our comfort zone. Doesn’t mean that we necessarily get this quarter-on-quarter, likely that in the next couple of quarters, it will be higher than that including this investment, and likely that the 25% anyway needs to include all of that as well. So, it will not be below that 25%. Sure. And secondly on the trade gen -- yes. So just to clarify,
Q
Thank you all for joining us for today's evening call. In case of any further queries, please get in touch with the Investor Relations team. Thank you so much.
Management
Speaking time
Erez Israeli
29
Moderator
15
Parag Agarwal
14
Kunal Dhamesha
6
Surya Patra
6
Saion Mukherjee
6
Bino Pathiparampil
6
Damayanti Kerai
4
Tushar Manudhane
4
Ankush Mahajan
4
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Opening remarks
Richa Periwal
Thank you, Dorwin. 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 June 30, 2023. Earlier during the day, we have released our results and the same is 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. The discussion today contains certain non-GAAP financial measures. For a reconciliation of GAAP to non-GAAP measures, please refer to our press release. To discuss the business performance and outlook, we have our CEO - Mr. Erez Israeli & our CFO - Mr. Parag Agarwal, along with 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 consen
Parag Agarwal
Thank you, Richa. Greetings to everyone! A warm welcome to our Q1 FY2024 Earnings Call. We had a strong start to the year with robust sales and record profitability. I'll start today with an overview of our financials for the quarter. For this section, all the amounts are translated into US dollar at a convenience translation rate of Rs. 82.06 which is the rate as of 30th June 2023. Consolidated revenues for the quarter stood at Rs. 6,738 crores, that is $ 821 million and grew by 29% on YoY basis and by 7% on a sequential quarter basis. Adjusted for brand divestment income on a re-based comparator; the underlying growth was higher at 35% on YoY basis and 12% sequentially. The growth was driven by the generics business mainly in US, Emerging Markets & Europe. Excluding the one-off gains from brand divestment, loss of revenue from divested portfolio and NLEM related price reduction, India business registered a high single digit growth. Consolidated gross profit margin for this quarter ha
Erez Israeli
Thank you, Parag, and a warm welcome to everyone participating in our Earnings call today. As always, we appreciate your interest in our company. We have commenced fiscal 2024 with a robust first quarter performance. Our sales for Qtr-1 grew 29% and EBITDA grew 20% reflecting the strength of our portfolio and well-diversified geographical spread. Adjusted for settlement income in current & base period and brand divestment in base period, our sales for Qtr-1 grew 35% and our EBITDA grew 111%. We improved the drivers in our core businesses for sustainable growth through productivity improvements, market share gains and new product launches. We are making considerable progress across our strategic priorities. Let me take you through some of the key highlights of the quarter: 1. Sustained strong revenue growth driven by momentum in US and Russia markets. 2. Generated healthy EBITDA at ~32% and annualized RoCE at ~39% 3. High cash generation leading to net cash surplus of more than $ 608 mn
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