Dr. Reddy’s Laboratories Ltd. (BSE: 500124 | NSE: DRREDDY | NYSE: RDY | NSEIFSC: DRREDDY) today announced its consolidated financial results for the fourth quarter and full year ended March 31, 2023. The information mentioned in this release is on the basis of consolidated financial statements under International Financial Reporting Standards (IFRS).

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Q4 FY23 Sales Mix (Graphic: Business Wire)

Commenting on the results, Co-Chairman & MD, G V Prasad said: “FY 23 has been a year of record sales, profits and cash flow, driven by our performance in US Generics. We progressed well in our productivity and sustainability agenda. We will continue to deliver on our purpose, invest in growth drivers and promote a culture that is innovative and collaborative ensuring the future of our business.”

All amounts in millions, except EPS. All US dollar amounts based on convenience translation rate of 1 USD = Rs. 82.19

All amounts in millions, except EPS. All US dollar amounts based on convenience translation rate of 1 USD = Rs. 82.19

All amounts in millions, except EPS. All US dollar amounts based on convenience translation rate of 1 USD = Rs. 82.19

All amounts in millions, except EPS. All US dollar amounts based on convenience translation rate of 1 USD = Rs. 82.19

Revenue Analysis [Q4 FY23 and FY23]

Global Generics (GG)

• FY23 revenue for GG segment at Rs. 213.8 billion higher by 19% over FY22. This growth was driven by North America, Europe and India, while Emerging markets remained flat.
• Q4 revenue at Rs. 54.3 billion, YoY growth of 18% and QoQ decline of 8%. YoY growth was driven by growth in North America, Europe and India markets; however, partially impacted due to a decline in revenues in Emerging Markets. QoQ decline was mainly due to decline in North America and Emerging Markets, partially offset by growth in Europe and India

North America

• FY23 revenue from North America Generics for the year at Rs. 101.7 billion, YoY growth of 36%. The growth was contributed by new launches, scale up of existing products and favorable forex rates movement, which was partially offset by price erosion.
• Q4 revenue at Rs. 25.3 billion, YoY growth of 27% and QoQ decline of 17%. YoY growth was primarily on account of new product launches and favorable forex rates movement, partly offset by price erosion. QoQ decline was due to fluctuation in demand for our new launches.
• During the quarter, we launched 6 new products – Difluprednate, Lurasidone Tablets, Lubiprostone Capsules, Sunitinib Capsules, Nelarabine Injection and Timolol Gel. This takes our full year launch count to 25 products.
• During the year, we filed 12 new Abbreviated New Drug Applications (ANDAs) with the US Food and Drug Administration (USFDA). As of 31^st March 2023, cumulatively 86 generic filings are pending for approval with the USFDA (81 ANDAs and 5 NDAs under 505(b)(2) route). Out of the pending 86 ANDAs, 45 are Para IVs, and we believe 18 have ‘First to File’ status.

Europe

• FY23 revenue from Europe at Rs. 17.6 billion. YoY growth of 6%, driven by volume traction in base business and new product launches, which was partially offset by price erosion in some of our products.
• Q4 revenue at Rs. 5.0 billion, YoY growth of 12% and QoQ growth of 15%. YoY growth was primarily on account of new product launches and traction in base business volumes, partly offset by price erosion in the base business. QoQ growth was driven by traction in base business volumes and favourable forex rates movement.

India

• FY23 revenue from India at Rs. 48.9 billion. YoY growth of 17% was primarily attributable to increase in prices of our existing products, along with additional revenues from the launch of new products. The growth was also aided by divestment of a few non-core brands during the year. During the year, we launched 9 new brands in India.
• Q4 revenue at Rs. 12.8 billion, YoY growth of 32% and QoQ growth of 14%. YoY growth primarily driven by favorable price variance, new product launches, and non-core brand divestments while QoQ growth was primarily due to divestment of a few non-core brands, partially offset by decline in volumes of some of our products.

Emerging Markets

• FY23 revenue from Emerging Markets at Rs. 45.5 billion, remained flat over the previous year. However, this grew by 13% adjusted for the covid related product sales and divestment income realized in the last year.
  • Revenue from Russia for the year at Rs. 21.2 billion, YoY growth of 2% impacted due to higher base of FY 22, which included revenues from divestment of few non-core brands. The base business grew by 11% net of divestment income, driven by favorable price variance and beneficial forex rates movement, partially offset by a decrease in volumes.
  • Revenue from other CIS countries and Romania for the year at Rs. 8.6 billion, YoY growth of 4%. Growth was on account of favorable price variance, partly offset by a decrease in volumes of base business and adverse movement in forex rates.
  • Revenue from Rest of World (RoW) territories for the year at Rs. 15.7 billion, YoY decline of 5% primarily on account of revenues from covid related products in the FY 22. The revenues were also impacted by an adverse price variance, partly offset by new product launches.

• Q4 revenue at Rs. 11.1 billion, YoY decline of 7% and QoQ decline of 15%.
  • Revenue for Russia for Q4 at Rs. 5.2 billion, both YoY and QoQ decline of 24%. YoY decline was mainly attributable to divestment income & higher channel inventory in Q4 of last year. QoQ decline was primarily due to reduction in base business volumes and adverse forex rates movement.
  • Revenue from other CIS countries and Romania for the quarter are Rs. 2.3 billion, remained flat YoY while showing an increase of 2% QoQ. Benefits from favorable price variance were set off with reduction in base business volumes.
  • Revenue from Rest of World (RoW) territories for Q4 at Rs. 3.7 billion, YoY growth of 28% and QoQ decline of 8%. The YoY growth was primarily driven by an increase in base business volumes, new product launches and favorable forex rates movement, partially offset by adverse price variance. QoQ decline was mainly due to adverse price variance and reduction in base business volumes.

Pharmaceutical Services and Active Ingredients (PSAI)

• FY23 revenue from PSAI at Rs. 29.1 billion. YoY decline of 5%. The decline was mainly on account of decline in base business volumes and price erosion in some of our products, partially offset by new product launches and favorable forex rate movements. FY22 included higher contribution from sales of covid related portfolio.
• Q4 revenue at Rs. 7.8 billion, with growth of 3% YoY, while it remained flat QoQ. YoY growth was primarily driven by new product launches and favourable forex rates movement. These were offset by a reduction in base business volumes and adverse price variance.
• During the year, we have filed 12 DMFs in the US, of which 7 DMFs were filed in Q4FY23.

Income Statement Highlights:

• FY 23 gross margin at 56.7%, an increase of ~360 bps over previous year. The increase was driven by new product sales of certain products with higher gross margins, higher government incentives and favourable foreign exchange. This was partially offset with price erosion in certain of our products, primarily in the United States and Europe. The gross profit margin for GG and PSAI business segments are at 62.1% and 16.2% respectively.
  
  
  
  Q4 gross margin at 57.2% (GG: 61.7%, PSAI: 25.2%). Gross margin increased by ~430 bps YoY, while it declined by ~210 bps QoQ. YoY increase was driven by new product sales of certain products with higher gross margins, and favourable foreign exchange, partially offset by price erosion, primarily in United States and Europe. QoQ decline was primarily due to lower government incentives and product mix, which was partly offset by income from divestment of non-core brands.
• Selling, general & administrative (SG&A) expenses for FY23 at Rs. 68.0 billion, an increase of 10% on a YoY basis. SG&A as a % to sales for FY23 was 27.7%, a decline of 130 basis points over FY22. SG&A expenses for Q4 at Rs. 18.0 billion, YoY increase of 15% and remained flat QoQ. The SG&A spend increase is largely on account of investments in sales & marketing and adverse impact of forex rates.
• Impairment charge for FY23 at Rs. 0.7 billion and for Q4 at Rs. 0.5 billion. This is mainly due to decrease in market potential of products acquired from Nimbus Health GmbH and certain other product-related intangibles due to adverse market conditions.
• Research & development (R&D) expenses in FY23 at Rs. 19.4 billion. As % to Revenues – FY23: 7.9% | FY22: 8.2%. Q4 R&D expenses at Rs. 5.4 billion, 8.5% of revenue. We continue our focus on investing in R&D to build a healthy pipeline of new products across our markets for both small molecules and biosimilars.
• Other operating income for FY23 at Rs. 5.9 billion compared to Rs. 2.8 billion in FY22. The net other income was higher primarily on account of recognition of income of Rs. 5.6 billion from a settlement agreement, with Indivior Inc., Indivior UK Limited, and Aquestive Therapeutics, Inc., resolving all claims between the parties relating to the Company’s generic buprenorphine and naloxone sublingual film. Other operating income for Q4 was Rs. 0.3 billion.
• Net Finance income for FY23 at Rs. 2.9 billion compared to Rs. 2.1 billion in FY22. The increase is primarily on account of higher foreign exchange gain in current year as compared to FY22 and increase in profit on sale of mutual funds compared to FY22. Net finance income in Q4 was Rs. 0.8 billion.
• Profit before Tax for FY23 at Rs. 60.4 billion, YoY growth of 87%. Profit before Tax for Q4 is at Rs. 13.3 billion.
• Profit after Tax for FY23 at Rs. 45.1 billion and for Q4 at Rs. 9.6 billion. The effective tax rate for the year has been 25.3% as compared to 27.0% in FY22, due to changes in the Company’s jurisdictional mix of earnings. The effective tax rate for the quarter has been at 27.6% as compared to 64.8% in Q4FY22. The previous year ETR was higher due to impairment charge impact.
• Diluted earnings per share for FY23 is Rs. 270.9. Diluted earnings per share for Q4 is Rs. 57.6.

Other Highlights:

• EBITDA for FY23 at Rs. 73.1 billion and the EBITDA margin is 29.7%. EBITDA for Q4 at 16.3 billion and the EBITDA margin at 25.9%.
• Capital expenditure for FY23 at Rs. 11.3 billion. Capital expenditure for Q4 at Rs. 2.6 billion.
• Free cash-flow for FY23 at Rs. 40.1 billion and for Q4 it at Rs. 16.0 billion.
• Net cash surplus for the company at Rs. 50.5 billion as on March 31, 2023.
• The Board has recommended payment of a dividend of Rs. 40 per equity share of face value Rs 5/- each (800% of face value) for the year ended March 31, 2023 subject to approval of the members of the company.

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, as the case may be, 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

All amounts in millions, except EPS

Computation of EBITDA

Refer page no. 2 and 4 for EBITDA computations.

Earnings Call Details (07:30 pm IST, 10:00 am EDT, May 10, 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=8728481&linkSecurityString=2cca7c8d18

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 May 17^th, 2023. For play back dial in phone No: +91 22 7194 5757, and Playback Code is 65827.

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 an integrated pharmaceutical company, committed to providing affordable and innovative medicines for healthier lives. Through its businesses, Dr. Reddy’s offers a portfolio of products and services including APIs, custom pharmaceutical services, generics, biosimilars and differentiated formulations. Our major therapeutic areas of focus are gastrointestinal, cardiovascular, diabetology, oncology, pain management and dermatology. Dr Reddy’s operates in markets across the globe. Our Major markets include – USA, India, Russia & CIS countries, and Europe. 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, (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.”

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