Dr. Reddy's Laboratories Ltd

Ladies and gentlemen, good day and welcome to the Dr. Reddy's Q2 FY24 earnings conference call. As a reminder, all participant lines will be in the listen-only mode. 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 and then 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, Darwin. 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 September 30, 2023. Earlier during the day, we've released our results and the same is also posted on our website. This call is being recorded and the playback and transcripts shall be made available on your website soon. All the discussions and analysis of this course will be based on the IFRS Consolidated Financial Statements. The discussion today contains certain non-GAAP financial measures or a reconciliation of GAAP to non-GAAP measures. Please refer to our press release. To discuss the business performance and outlook, we have our CEO, Mr. Irey Rizwaili, and our CFO, Mr. Parag Agarwal, along with 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'd 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 Agarwal. Over to you, Parag.

Thank you Richa and a warm welcome to our 42 FY2024 earnings call and a thank you to everyone joining today. We have built on our positive momentum and delivered another strong quarter of financial results with higher saver sales and record profitability. In the financial overview section that I will cover today, All the amounts are translated into U.S. dollar at a convenient translation rate of roughly 83.08, which is the rate as of 30th September 2023. Controllability revenues for the quarter stood at roughly 6,880 crores, that is U.S. dollar 828 million, and grew by 9% on year-on-year basis and by 2% on a sequential basis. The growth was driven by the generic business mainly in U.S. and Europe. Consolidated growth profit margin for this quarter has been 58.7%, a decrease of around 40 basis points over previous year and broadly flat sequentially. Growth margin for the global generation and PSAI business were at 63.6% and 17.8% respectively. The LG&A spend for the quarter is rupees 1880 crores, which is US dollars 226 million. an increase of 13% year-on-year and an increase of 6% quarter-on-quarter. The year-on-year increase is primarily on account of investment in sales and marketing, digitalization, and other business initiatives. The FD&A cost as a percentage of sales was 27.3% and is marginally higher by 106 basis points year-on-year and 105 basis points quarter-on-quarter. The R&D spent for the quarter is between 545 crores, that is US dollars 66 million, and is at 7.9% of stake. Our R&D investments are driven by ongoing clinical trials on differentiated assets, as well as other developmental efforts to build a healthy pipeline of new products across our market for both small molecules and biosimilars. The EBITDA for the quarter is between 2,181 crores, that is, year dollars, 263 million, and the EBITDA margin is 31.7%. Our profit before tax for the quarter is 2,000 rupees, 1,913 crores, that is, year dollars, and 30 million, an increase of 19% year-on-year and 4% over previous quarter. The net finance income for the quarter is rupees 1.3 crores. Effective tax rate has been at 22.6% for the quarter. The effective tax rate was lower than the previous year mainly due to adoption of corporate tax rates under Section 115BAA of the Income Tax Act of India. We expect our normal ETR for the year to be in the range of 24 to 25%. Profit architects for the quarter stood at roughly 1,480 crores, that is US dollars 178 million. Reported ETS for the quarter is roughly 88.8. Operating working capital reduced by Rs. 598 crores, which is US$72 million, against debt on June 30th, 2023, mainly due to decrease in receivables. Our capital investment stood at Rs. 322 crores, which is US$39 million in this quarter. The free cash flow generated before acquisition related payout during this quarter was at Rs. 1,447 crores, which is US$174 million. Consequently, we now have a net surplus cash of rupees 5,906 crores, which is US dollars 711 million, as on September 30th, 2023. Foreign currency cash flow hedges in the form of derivatives from the US dollar are approximately US dollars 648 million, largely hedged around the range of rupees 82.9 to rupees 84.5 to the dollar, rubles $2,475 million at the rate of $0.98 to the ruble, and $2.7 million at the rate of $58.06 to the ruble, maturing in the next 12 months. With this, I now request Eray to take us through the key business highlights. Thank you, Parag, and a warm welcome to everyone participating in our early calls today. As always, we appreciate your interest in our company. We are pleased to report a quarter with the highest ever revenue, EBITDA, profit before tax, and profit after tax. We saw growing momentum in our products and businesses. Our geographic diversification, productivity improvement in operations, and able operating margin delivery. We continued strategic progress on our various key initiatives to ensure that we are well positioned for differentiated and competitive growth. Let me take you to some of the key highlights of the quarter. Sales for quarter two grew 9%, and EBITDA grew by 30%, reflecting the portfolio's strengths and continued momentum in the U.S. and Europe. We generated healthy EBITDA at 32%, and annualized ROCE at 39%. High cash generation leading to net cash surplus of more than $712 million at the end of the quarter. A few developments in our global biosimilar journey in the quarters include receiving of GMP certificate indicating closure of inspecting by the UK MHRA for Batch Puli Biologic Facility. A pre-approval inspection by the US FDA of our biologics facility based in Batch Puli concluded with nine observations. We will address them within the stipulated timeline. CAR-T-ACER DRL approved for clinical trials in India. The leading financial publication, Financial Express and EQube, in a joint study, have named Dr. Redis as the leading company in ESG in India across sectors. The company received SA8000, a multi-site certification, including 6 CTO units and 10 formulation units at Biologics. and has been successfully audited and awarded compliance to ISO 2400-2017. This demonstrates organization commitment towards social goals and accountability. We will confer with the prestigious Golden Peacock Award for Excellence in Corporate Governance of 2022. Now let me take you to the key business highlights for the quarter. Please note that all references to these numbers In these sections are representative local currencies. Our North America generic business recorded sales of $384 million for the quarter, with strong year-over-year growth of 9%, while being broadly flat on sequential basis. The growth was supported by market share expansion in certain existing key products and complete integration of main portfolio, which more than offset price erosion. We launched four new products during the quarter. Our euro business recorded sales of 59 million euros this quarter, with a year-over-year growth of 12% and a sequential increase of 4%. The contribution from new product launches and improvement in base business volumes more than offset price erosion. We launched a total of 20 products across markets during this quarter. Our emerging markets business recorded sales of $1,012. 1,012.16 crores rupees and marginal year-on-year decline of 1% and sequential increase of 5%, primarily impacted by seasonality and unfavorable thoughts. While we may experience Q and Q volatility, full year outlook is on track. We lost 32 new products during the quarter across various countries of the emerging markets. Within the emerging market segment, the Russia business grew by 4% on year-on-year basis and 9% on sequential basis in constant currency. Our India business recorded sales of 1,186 crores rupees and reported year-on-year growth of 3% and sequential increase of 3%. Excluding loss of revenues from NLEM-related price reduction, India business grew in mid-tingle digits. Our focus on profitable growth coupled with sales and marketing execution has led to gradual improvement in business performance. We further made following strides to access new growth leaders and drive differentiation. We signed a new licensing deal with Hungary, NC Pirotinib. We launched Nerivio in India, our first digital therapeutic products addressing unmet needs of migrant patients. We launched a direct-to-consumer platform, CelebidaWellness.com, for serving the needs of diabetic patients in India. India remains a priority market and will continue to strengthen its presence in co-generic business while investing and building the innovation spaces. Our PCAI business recorded sales of $85 million with a year-on-year growth of 3% and a sequential increase of 4%. We expect sales to improve over the next couple of quarters on the back of increasing volume pickup and strategic collaboration with regional and global players. We invested 7.9% of our revenue to empower and enhance our R&D competency. Our efforts are focused on developing value-added products, including several generic injectables where there is a patient need. We have done six global generic filings, including two UNDARs and one NDAs filed in the United States during the quarter two of FY24, and are on track to accelerate on this in the balance of year FY24. We remain focused on building best-in-class capabilities and commercial infrastructure to leverage our portfolio to expand further. Our ability to adapt Strong execution and financial muscles will enable us to grow our core business and build pipeline of products to meet patient needs. I am pleased with the progress that we have made so far this year and that we have a clear plan in place to move forward and the pace to deliver on our key objectives and support the overall growth ambitions of the company. With this, I would like to open the floor for questions and answers.