Dr. Reddy's Laboratories Ltd

Ladies and gentlemen, good day and welcome to the Dr. Reddy's Laboratories Ltd Q3 FY21 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 call, please signal an operator by pressing star then zero on your touchstone phone. Please note that this conference is being recorded I now hand the conference over to Mr. Amit Agarwal from Dr. Reddy's Laboratories Ltd. Thank you and over to you sir.

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 31, 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 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 Statement to discuss the business performance and outlook We have the leadership team of Dr. Reddy's, comprising Mr. Hriday Vigraili, our CVO, Mr. Parath Adarwal, 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 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. Taraz Adarwal. Over to you, sir.

Thank you, Amit, and greetings to everyone. I hope all of you and your families are keeping safe and healthy. I am pleased to take you through our financial results for the quarter 3 of fiscal 2021. We had yet another quarter of good performance in terms of revenue growth and EBITDA margin, though the profits were impacted by impairment charge taken during the quarter. Let me take you through these in a bit more detail. For this section, all the amounts are translated into US dollars at a convenience translation rate of 573.01 which is the rate as of 31st December 2020. Consolidated revenues for the quarter stood at 4,930 crores that is 675 million US dollars and grew by 12% on a year-on-year basis. Growth is primarily on account of new product launches across markets. Our North American generic business grew by 9%, Europe business by 34%, India by 26%, emerging markets by 5%, and PSEI by 1%. Sequentially, our revenues grew by 1% supported by volume pick-up in India, emerging markets, and Europe, however impacted by price growth in the North American business and lower volumes in the PSEI business. During the quarter, We recognize milestone received towards AUR 102, one of the programs of our origin discovery business. Consolidated gross margin for this quarter has been 53.8%, a decline of 30 basis points year-on-year and 10 basis points on quarter-on-quarter basis. The decline is primarily on account of price erosion and lower export benefits. However, supported by milestone income receipts towards AUR 102 compound and productivity improvement. Growth margin for the global generics and PSAI businesses were at 57.6% and 25.3% respectively for the quarter. The FD&A expense for the quarter is between 1439 crores, that is US dollars 197 million, An increase of 14% year-on-year and an increase of 10% quarter-on-quarter. The increase in expenses is due to investments made in sales and marketing in branded markets, digital capability building, higher sales costs, and certain one-time expenses pertaining to this quarter. At V&A, the percentage of sales was 29.2%, which is within our normal range. The R&D spent for the quarter is Rs. 411 crores and is at 8.3% of sales. The product development activities continued normally during the quarter, including development of COVID-19 related products. The editor for the quarter is Rs. 1,185 crores Abita Margin is at 24% and it is closely tracking our aspirational targets of 25%. In this quarter we have taken an impairment charge of Rs. 597 crores that is 82 million USD. The impairment has been taken primarily on three products related intangibles acquired from Teva in the year 2016. These are for the Mullery, Centamine and Cofilamide. and Sexy Goodkin and Matt Thurman. We do a quarterly impairment testing analysis and as part of it we concluded that the carrying value of certain of our intangible assets are not reflected of the current market reality and hence in line with the requirements of the accounting standards we took this charge. Consequently, our profit before tax for the quarter stood at rupees 284 crores. That is 39 million US dollars. Effective tax rates for the quarter has been 93% higher due to non-recognition of default tax asset and losses arising out of impairment. We expect our normal ETR to be around 25% before the impact of impairment charges. Profit after tax for the quarter is still as it is 20 crores, that is $3 million. Reported ETS for the quarter is reduced 1.19%. Operating working capital increased by approximately Rs 600 crores which is 82 million US dollars. There has been an increase of approximately Rs 300 crores each in the receivables and the inventory. Increase in receivables was partially due to reduction in discounting of receivables and the balance is in line with the normal business trend. Increase in Inventory was due to a planned increase in inventory for certain products to deal with any potential supply disruptions. We invested Rs. 287 crores towards capital investments in this quarter. The free cash flow was a net outflow of Rs. 58 crores after payouts for the banks acquired from Denmark for the Russia and CIS markets. We had a net cash surplus as on 31st December 2020 of Rs. 84 crores, that is 11 million USD. Foreign currency cash flow hedges for the next 15 months in the form of derivatives per USD are approximately 535 million USD, largely held around the range of Rs. 74.5 to Rs. 77.6. In addition, we have cash flow hedges of rubles 550 million at the rate of 1.0021 to the ruble, maturing over the next 15 months. With this, I now request Erez to take to the key business highlights. Over to you, Erez.