Dr. Reddy's Laboratories Ltd

Ladies and gentlemen, good day and welcome to Q2 FY23 earnings conference call of Dr. Reddy's Laboratories Ltd. 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. Thank you and over to you sir.

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-end of September 30, 2022. 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 discussion 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. Edey Ezraili, our CEO, Mr. Parag Ezrawal, our CFO, and the investor relations team. Please note that today's call is a copyrighted material of Dr. Reddy's and cannot be read, broadcasted, 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. Faraz Azarwal. Over to you, sir.

Thank you, Amit, and greetings to everyone for the current festive season. This quarter we had strong financial performance with highest ever sales, PVT and EBITDA in a quarter. The performance has been supported by the launch of Plenary Domain Capsules in the U.S. and rebound of Russia performance over last quarter. Let me take you through the details for the quarter. For this section, all the amounts are translated into U.S. dollar at a convenient translation rate of $81.37, which is the rate as of September 30, 2022. Consolidated revenue for the quarter stood at Rs. 6,306 crores and grew by 9% year-on-year basis and by 21% on a sequential quarter basis. In the same quarter of last year, we had high COVID product sales, adjusted for which we have grown in high teams in this quarter. Consolidated gross profit margin for this quarter stood at 59.1%, and increase of 565 basis points over previous year and 920 basis points sequentially. The growth margins were mainly aided by favorable product mix and production link incentive recognition. However, it was partially offset by provision made on COVID products inventory as the sales on these products have reduced significantly. Gross margins for the global generic and PSAI businesses were at 65.4% and 3.6% respectively for the quarter. PSAI gross margins were primarily impacted due to inventory provision on COVID products and adverse leverage on manufacturing overhead on a lower scale scale. We expect it to improve in the coming quarters. The SG&A spent for the quarter is Rs. 1,656 crores, that is US$204 million, an increase of 4% year-on-year and 7% quarter-on-quarter, which is in line with business growth. As a percentage to sales, our SG&A has been at 26.3%, which is lower by 140 basis points year-on-year and 340 basis points sequentially. The R&D spent for the quarter is 487 crores that is US$ 60 million and is at 7.7% of sales. We have been making good progress on our R&D pipeline in line with our business strategy. Further, while we continue to drive productivity, we have been investing it back to strengthen our development pipeline, building marketing capability and digitalization. The net finance expense for the quarter is Rs. 16 crores that is US$ 2 million We have been able to manage well the risk arising from the forest fluctuations in the current volatile environment. The EBITDA for the quarter is Rs. 1,932 crores and the EBITDA margin is strong at 30.6%. Our profit before tax stood at Rs. 1,611 crores which is a growth of 27% year-on-year and a growth of 10% quarter-on-quarter. Effective tax rate for the quarter has been at 30.9% due to the tax effects arising from jurisdictional mix. We expect our normal EPR to be in the range of 25-26%. Profit after tax for the quarter stood at Rs. 1,113 crores i.e. Rs. 137 million. Reported EPS for the quarter is Rs. 66.89. Operating working capital increased by Rs. 322 crores i.e. Rs. 40 million. Our working capital base reduced by 15 days due to optimization of inventory across our businesses and factoring of renewables in Russia. Our capital investment during the quarter stood at 251 crores, which is US$31 million. The free cash flow during this quarter was reduced 580 crores, U.S. $169 million as of September 30, 2022. Foreign currency cash flow hedges in the form of derivatives to the U.S. dollar are approximately U.S. $402 million largely held around the range of Rs. 78.8 to Rs. 81.7 to the dollar maturing in the next 12 months. Ruble, Rs. 4,320 million at the rate of Rs. 0.19 to the ruble. Australian dollar, Rs. 2.4 million at the rate of Rs. 56.04 to Australian dollar. And South African brand, Rs. 67 million at the rate of Rs. 4.82 to South African brands, maturing in the next six months. With this, I now request Erez to take you through the key business highlights.