Dr. Reddy's Laboratories Ltd

Ladies and gentlemen, good day and welcome to the Dr. Reddy's Laboratories Ltd Q1-FI21 earnings conference call. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Agarwal. Thank you and over to you, sir.

Very good morning and good evening to all of you. And thank you for joining us today for the Dr. Reddy's Earnings Conference Hall for the quarter-ended June 30, 2020. 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 shall be made available on our website soon. All the discussions and analysis of this call will be based on the IFRS consolidated financial statement. To discuss the business performance and outlook, we have the leadership team of Dr. Reddy comprising Mr. Erez Israeli, our CEO, Mr. Shomin Chakraborty, 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 outlets without the company's express written consent. Before I proceed with the call, I would like to remind everyone that the safe harbor contained in today's press release also pertains to this conference call. Now, I hand over the call to Mr. Swamin Chakraborty. Over to you, sir.

Thank you, Amit. Greetings to everyone. During the current challenging times, I hope you all are keeping yourself safe and healthy. We are going through quite an uncertain and challenging business environment with volatility arising from both demand and supply side. I'm glad that our teams have responded very well to those challenges. and have been able to deliver quite healthy financial performance during this quarter. The key financial highlights for the quarter are one, strong year-on-year revenue growth of 15%, two, healthy gross margin at 56%, three, Evita margin of 26.3% and Evita growth of 47% adjusted for settlement income in last year 4. PVT margin of 19.9% and PVT growth of 74% adjusted for settlement income in last year 5. Strong free cash flow generation of Rs. 925 crore before payout for business acquisition from ROCAT. And six, Q1 FY21 annualized return on capital employed of 23.6%. Let me take you through these in a bit more detail. For this section, All the amounts are translated into US dollar at a convenience translation rate of rupees 75.53, which is the rate as of 30th June 2020. Consolidated revenues for the quarter stood at rupees 4,418 crores, that is 585 million dollars. and grew by 15% on a year-on-year basis and remained flat on a sequential quarter basis. Year-on-year growth has been supported by 88% growth in PSAI, 48% growth in Europe, 9% growth in emerging markets, 6% growth in energy, with a decline of 10% in India. The sales were impacted due to decline in volume in our global generic business which was upset with a growth in PSAI business. Consolidated gross profit margin for this quarter has been 66% with an increase of 430 basis points year-on-year and 450 basis points quarter-on-quarter. This increase was driven by favorable forex rate Beta Product Mix, and Improved Productivity. Gross margin for the Global Genetics and PSAI were at 61.4% and 33.4% for the quarter. The SG&A spent for the quarter is Rs. 1279 crores, that is $169 million. and increased by 6% year-on-year, 5% quarter-on-quarter. The increase is primarily attributable to higher freight due to shortage of carriers for exports. The R&D spent for the quarter is Rs. 398 crores, that is $53 million, and is at 9% of sales. Most of the product development activities continued during the quarter, including development of a few COVID-19 related products. The EBITDA for the quarter is Rs. 1,162 crores, that is $154 million, which is 26.3% of the revenue. EBITDA grew by 2% year-on-year on a reported basis. and 47% adjusted for settlement income in previous years. Sequentially, EBITDA grew by 16%. The strong growth is reflective of improvement in gross margin and productivity. Profit before tax of the quarter is Rs. 879 crore, that is $116 million. with a year-to-year growth of 3% on a reported basis and 74% growth adjusted for settlement income in previous year. Sequentially, PVT grew by 23%. Effective tax rate for the quarter is at 34.1%. The ETR has been impacted due to discontinuation of weighted deduction on R&D and completion of tax holiday for one of our plants. As you know, we are continuing with the world tax rates for India due to availability of match credit in our books. We expect the ETR to be in the range of 25 to 27% for the full year. Profit of the tax for the quarter stood at Rs. 579 crores. That is $77 million, which is 13.1% of the revenue. The reported EPS for the quarter is Rs. 34.86. Operating working capital decreased during the quarter by around Rs. 200 crores, which is $26 million. This decrease is due to reduction in receivables and an increase in trade payables We have been partially offset with a planned increase in inventory across the market. We invested 150 crores, which is $20 million, towards capital investment in this quarter. The free cash generated during this quarter was 925 crores, which is $122 million, before making the acquisition-related payment of The net free cash flow for the quarter stood at minus Rs. 574 crore, which is Rs. 76 million. Even after the acquisition related payout to Vocard, our net debt as on June 30, 2020 was Rs. 336 crore. Our net debt to equity ratio is at 0.02 and continues to reflect our strong balance situation. Foreign currency cash flow ages for the next nine months in the form of derivatives per US dollar are approximately $260 million, largely aged around the range of Rs. 73 to Rs. 77 to the dollar. In addition, we have cash flow ages of Ruble 2,600 million at the rate of rupees 1.045 to the ruble, maturing over the next nine months. With this, I now request the stage to take to the key business highlights.