Dr. Reddy's Laboratories Ltd

Ladies and gentlemen, good day and welcome to Dr. Reddy's Laboratories Limited Q3 FY23 earnings conference call. As a reminder, all part of seven 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 this conference call, please signal an operator by pressing start and zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Ms. Richa Periwal. Thank you, and over to you, ma'am.

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 ended December 31, 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 transcripts 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's, comprising Mr. Israel Israeli, our CEO, Mr. Parag Agarwal, 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 expressed 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. Parag Vargaon. Over to you, Parag.

Thank you, Richa, and greetings to all and wishing you all a very happy new year. I am pleased to take you through our financial performance for the quarter. For this section, all the amounts are translated into US dollar at a convenient translation rate of rupees 82.72, which is the rate as of December 30th, 2022. This is yet another quarter with a strong all-down financial performance reflected in highest ever sales and profits and strong free cash flow. Consolidated revenue for the quarter stood at Rs. 6,770 crores, that is US$818 million, and grew by 27% year-on-year basis and by 7% on a sequential quarter basis. The performance was supported by healthy growth across our businesses, with contributions from both base business and new product launches. Consolidated gross profit margin for this quarter stood at 59.2%, an increase of 545 basis points over previous year and 15 basis points sequentially. On a year-on-year basis, the gross margins were mainly aided by an increase in contributions from new products and favorable product mix. Gross margins for the global generics and the PSAI business were at 64.6% and 18.2% respectively for the quarter. In line with our expectations, PSA gross margins have rebounded compared to the last quarter. The SG&A spend for the quarter is Rs. 1,798 crores, that is, US dollars 217 million, an increase of 17% year-on-year and 9% quarter-on-quarter. The expense in the current quarter reflects an increase in investments, certain runoff expenses, and an impact of the forex rate. As a percentage to sales, our S&D has been at 26.6%, which is lower by 240 basis points year-on-year and marginally higher by 30 basis points sequentially. The R&D spent for the quarter is rupees 482 crores, that is US dollars 58 million, and is at 7.1% of sales. We have been making good progress on our R&D pipeline in line with our business strategy. We continue to drive productivity across our businesses while also making investments to strengthen the product pipeline and capability development in marketing, digitalization, and people, including for the Horizon 2 initiatives. The net finance expense for the quarter is Rs. 14 crores, that is, US$2 million. The EBITDA for the quarter is Rs. 1,966 crores, that is, US$238 million, and the EBITDA margin is strong at 29%. Our profit before tax stood at Rs. 1,635 crores, that is US$198 million, which is a growth of 68% year-on-year and a growth of 1% quarter-on-quarter. Effective tax rate for the quarter has been at 23.7%. We expect our normal ETR to be in the range of 25% to 26%. Profit after tax for the quarter stood at Rs. 1,247 crores, that is US$151 million, Reposal EPS per quarter is Rs. 74.95. Operating working capital decreased by Rs. 490 crores, which is US$59 million, against that on September 30, 2022. The decrease is majorly due to higher collection of receivables and some increase in payable. Our capital investment during the quarter stood at Rs. 292 crores, which is US$35 million. We generated healthy free cash flow during the quarter of Rs. 1,975 crores, which is US$239 million. Consequently, we had a net cash surplus of Rs. 3,401 crores, that is US$411 million, as at the end of the quarter. As of 31st December 2022, foreign currency cash flow hedges in the form of derivatives for the US dollar are approximately US dollar 351 million, largely hedged around the range of rupees 80.3 to rupees 83.3 to the dollar, ruble 2975 million at the rate of rupees 0.9661 to the ruble, Australian dollar 1.8 million at the rate of rupees 56.20 to Australian dollar, and South African grand 34 million at the rate of rupees 4.81 to South African grand maturing in the next 12 months. With this, I now request Erase to take us through the key business highlights.