Dr. Reddy's Laboratories Ltd

Ladies and gentlemen, good day and welcome to Dr. Reddy's Q3 FY22 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 touch tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Amit Agarwal, Head of Investor Relations. Thank you and over to you.

Thank you. 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 31st, 2021. 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 Statements. To discuss the business performance and outlook, we have the leadership team of Dr. Reddy comprising Mr. Erez Israeli, our CEO Mr. Farag Erzerwal, our CFO and the investor relations team. Please note that today's call is a copyrighted material of Dr. Reddy's and cannot be re-broadcasted or attributed in press or media outlets without the complete expressed written content. Before I proceed with the call, I would like to remind everyone that the safe hardware contained in today's press release also pertains to this conference call. Now, I hand over the call to Mr. Farhad Darwal. Over to you, sir.

Thank you, Ahmed, and greetings to everyone. Hope all of you are keeping well. We had yet another quarter of good performance in terms of year-on-year growth in revenues and profits while maintaining healthy EBITDA margins and generating good cash flows. Let me take you through the key financial highlights for the quarter in a bit more detail. For this section, all the amounts are translated into USD at a convenient translation rate of Rs 74.39, which is the rate as of December 31, 2021. Consolidated revenue for the quarter stood at Rs. 5,320 crores i.e. USD $715 million and grew by 8% on year-on-year basis and declined by 8% on a sequential quarter basis. Year-on-year growth has been supported by growth across most of our businesses and was driven by good base business performance and recent launches. Sequentially, however, our revenues were impacted on a higher base of Q2 which had a higher contribution from COVID-related products and recognition of out-licensing income in our proprietary products business. Consolidated gross profit margin for this quarter has been at 53.8% which was flat over previous year. However, the margin increased by 40 basis points on a quarter-on-quarter basis. Gross margin for the Global Generics and TSAI were at 57.8% and 22.5% respectively for the quarter. The SG&A spend for the quarter is increased 1,541 crores, that is US$207 million, an increase of 7% year-on-year and a decrease of 3% quarter-on-quarter. The year-on-year increase is in line with our business growth and on account of continued investment in sales and marketing activities for brands in India and emerging markets. As a percentage of sales, our SG&A has been at 29%, which is lower by 20 basis points year-on-year. The R&D spent for the quarter is Rs. 416 crores i.e. USD 56 million and is at 7.8% of sales. R&D spend increased by 1% year-on-year and declined by 7% quarter-on-quarter. The product development activities continued normally during the quarter and we continue to build a healthy pipeline of new products across our markets. The EBITDA for the quarter is Rs. 1,266 crores that is USD 170 million and the EBITDA margin is 23.8%. The EBITDA margin for the 9 months in this fiscal is at 24% and is closely tracking our expiration target of 25%. Consequently, our profit before tax stood at Rs. 971 crores that is USD 131 million which is a growth of 242% year-on-year and a decrease of 23% quarter-on-quarter. Adjusted for the environment charges, our profits grew by 10.7% over previous years. Effective tax rate for the quarter has been at 27.2%. We expect our moment ETR to be in the range of 25-26%. Profit after tax for the quarter stood at Rs. 707 crores, that is USD 95 million. The total EPS for the quarter is Rs. 42.48. Operating working capital decreased by Rs. 512 crores, which is US$69 million, against that on September 3, 2021. The decrease was primarily driven by a decrease in receivables of Rs. 616 crores, aided by higher collections. Our capital investment during the quarter stood at Rs. 414 crores, which is US$66 million, The free cash flow generated during this quarter was a net inflow of Rs. 1,274 crores, which is USD 171 million. Consequently, we now have a net cash surplus of Rs. 998 crores, that is USD 134 million, as on December 31, 2021. Foreign currency cash flow hedges in the form of derivatives for the US dollar are approximately USD 360 million, largely hedged around the range of Rs. 75.4 to Rs. 78.9 to the dollar, Ruble 5875 million at the rate of 0.9909 to the ruble, Australian dollar 2.5 million at the rate of Rs. 58.74 to the Australian dollar and South African Rand 36.9 million at the rate of Rs. 4.97 to South African Rand, maturing in the next 12 months. With this, I now request Erez to take to the key business highlights.