Dr. Reddy's Laboratories Ltd

And welcome to the quarter two FY25 earnings conference call of Dr. Eddy's Laboratories Limited. As a reminder, all participant lines will be in the lesson 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 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 Q2 FY25 earnings conference call. We have with us the leadership team of Dr. Reddy's, comprising Mr. Eray Vizwali, our CEO, Mr. M.V. Narsimham, our CFO, whom we fondly call as M.V.M., and the investor relations team. Earlier during the day, we have released our results and the same is also posted on our website. We'll kick off today's call with Ambien taking us through the financial highlights of the quarter. This will be followed by Erase sharing his thoughts on operating environment and business performance. Post which, we'll open the forum for Q&A. Please note that today's call is a copyrighted material of Dr. Reddy's and cannot be rebroadcasted or attributed in press or media outlet without the company's express written consent. 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 statement. The discussion today contains certain non-GAAP financial measures For a reconciliation of gap to non-gap measures, please refer to our press release. 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 LVM.

Thank you, Richard. A very warm welcome to all. It is my pleasure to interact with you for the first time and present results for Q2FI25. We delivered a strong performance this quarter with broad-based top-line growth and healthy operating margins, resulting in highest-ever quarterly sales and TBT. As you all know, we completed the acquisition of the NRE portfolio and paid an apparent cash consideration of £458 million. We also completed the transactions with Nestle India on 1st August and all business activities of the Nutraceuticals portfolio is now being carried out through our subsidiary, Dr. D's and Nestle Health Science Limited. Following the completion, Nestle India was allocated shares of the subsidiary representing a 49% stake. We have also recently completed five-for-one stock split following the approval from our board and the shareholders. Let's now look at the financial performance of the quarter. For this section, all amounts have been translated into the US dollar at a convenient translation rate of 83.7%. which is the rate as of September 30th, 2024. Conservative revenues for the quarter stood at 8,016 crores, which is US dollar 957 million, and it grew by 17% on Euro year basis and 4% on sequential basis. All markets contributed to this quarter's Euro year growth. Consolidated gross profit margin stood at 59.6% for the quarter, an increase of 92 basis points over the same quarter of the previous year, and a decrease of 81 basis points sequentially. The year-over-year increase was primarily on account of an improved product mix and manufacturing overhead leverage, particularly offset by marginal price erosion in generic markets. The quarter-on-quarter decline was an account of overall mixed change. Gross margin for global generates and PSA rose at 63% and 30% respectively. The ASEAN spend for the quarter was 2,301 crores, which is US dollars to 75 million, an increase of 22% euro a year and 1% on Q2, The year-over-year increase was primarily on account of investments in new business initiatives, building capabilities, higher price costs, annual merit increase, and certain one-time costs related to the acquisition of inactive brands. The revenue spent as a percentage to the sales was 28.7% and was higher by 138 basis points on year-over-year and lower by 87 basis points on QQQ. Excluding the one-time acquisition-related cost, S&A spend was at 28.1% of sales. We expect S&A to be in the range of 27.5% to 28% for the full fiscal. The R&D spend for the quarter was 7.27 crores, which is US$87 million, an increase of 33% year-over-year and 17% QOQs. We are developing a robust pipeline of small molecules, biosimilar and novel oncology assets through internal and collaborative efforts to drive future growth. The R&D spend was at 9.1% of the sale, was higher by 115 basis points on the earlier and 100 basis points give or take. We expect the investment to be in the range of 8.5 to 9% for the full fiscal year. The other operating income for the quarter was Rs. 98 crores, lower versus Rs. 180 crores last year due to one-time product-related settlement income in the United Kingdom in the same quarter of the previous cycle. The EBITDA for the quarter was Rs. 2,280 crores, that is, US dollar 272 million. An increase of 5% on EUR year and 6% CO2. The EBITDA margins stood at 28.4% to the same and was lower by 326 basis points EUR year and higher by 30 basis points CO2. Excluding the one-time acquisition related costs as mentioned earlier, the underlying EBITDA margins stood at 29.1% of the same. Empowerment loss of 92 crores on intangibles related to a product in the main portfolio that was facing procurement constraints from its contract manufacturer. The net finance income for the quarter is 156 crores compared to 123 crores for the same quarter last year. Profit before tax for the quarter stood at 1,917 crores, that is US dollar 229 million. CBT as a percentage of revenue was at 23.9%, excluding the one-time acquisition-related cost and impairment charge as called out earlier. The underlying CBT margin stood at 25.7% of revenues. Effective tax rate for the quarter was at 30%. Pursuant to the amendments in the Finance Act 2024, resulting in withdrawal of indexation benefit, the company reversed a deferred tax asset of Rs. 48 crores created in earlier period on land. Excluding the impact of this one-time reversal, adjusted ETR for the quarter on the underlying PVT is 25.9%. We expect our normalized EPR to be around 25% for the fiscal. Profit after tax, but before minority interest for the quarter stood at 1,342 crores, which is US dollar 160 million. Tax margin was at 16.7% of revenues. The non-controlling interest share of profit after tax for the quarter was Rs. 86 crores, This primarily includes the share of one-time deferred tax asset recognized upon transfer of Dr. Reddy's nutraceutical branch to the subsidiary. Profit after tax excluding the non-controlling interest for the quarter stood at 1,255 crores, which is US$150 million. This is at 15.7% of revenue. Excluding the one-time acquisition-related costs, impairment chart, tax reversal, and non-controlling interest share as indicated earlier, the underlying tax margin stood at 19% of revenues. Reported EPS, Rs. 15.04. The EPS has been derived on the increased number of shares, post-stock split, and after non-controlling interest share. Operating working capital as of 30th September 2024 was Rs. 12,066 crores, which is USD 1,441 million, an increase of Rs. 511 crores, which is USD 61 million over 30th June 2024. Apex cash outflow for the quarter stood at 735 crores, which is USD 88 million. The free cash flow generated during this quarter was 204 crores, which is US dollar 24 million. For circulation related upfront payout, we have a net cash surplus of rupees 1889 crores in US dollar 226 million as of September 30th, 2024. Foreign currency cash flow hedges in the form of derivatives are as follows. US dollar 693 million hedge through structured derivatives around rate of 83.9 to 84.1 to the dollar, maturing over 12 months, which allows participation when USD is strengthened, and ruble 5,290 million with the minimum production rate of rupees 0.905 to the ruble maturing in next six months. With this, I now request Ares to take us through the key business highlights.