Dr. Reddy's Laboratories Ltd

Welcome to Quarter 1, FY27, early call of Dr. Reddy's Laboratories Ltd. We appreciate your continued interest in our company. I'm Aishwarya Saram, Head of Inventive Relations at Dr. Reddy's. Joining us today are members of the leadership team, Mr. Erez Israeli, our Chief Executive Officer, and Mr. M.V. Larasimham, MDN, our Chief Financial Officer. Our quarterly financial results have been published earlier today and are available on our website for your reference. We will start today's call with MVN providing an overview of our financial performance for the quarter. Following that, Erez will share his insights on key business highlights as well as the company's strategic outlook. We will then open the floor for questions. All commentary and analysis during this call are based on our IFRS consolidated financial statements. Please note that certain non-GAAP financial measures may also be discussed. Recalculations to the corresponding GAAP measures are included in our press release. I would like to remind everyone that the safe harbor provisions outlined in our press release today apply to all forward-looking statements made during this call. Before we proceed, I would like to call out a few housekeeping points. All participants will be in listen-only mode during the opening remarks. Should you need any technical assistance during the call, please use the chat function on your Zoom application. The chat will not be monitored for any questions to the management. The session is being recorded, and both the recording as well as the transcripts will be made available on our website shortly. Please note that this call is a proprietary material of Dr. Reddy's Laboratories Ltd and may not be re-broadcasted or quoted in any media or public forum without prior written consent from the company. With that, let me hand the call over to M.V.N. to present the financial highlights for the quarter. Over to you, M.V.N.

Thank you, Aishwarya. Greetings to everyone on the call. It is my pleasure to walk you through our financial performance for the first quarter of FY27. The business reported revenue decline of 5.6% and EBITDA margin of 12.5% for the quarter, reflecting the impact of lower linoleumite revenues, which contributed to the corresponding period last year, as well as a provision of Rs. 240 crores per inventory and other costs associated with the recent semaglutide EPA-related challenges. Notably, the underlying base business, excluding linoleumide, continue to deliver healthy double-digit growth across all key geographies, including North America, supported by new product launches and favorable currency movements. All financial figures in this section are translated into US dollars using a convenient translation rate of Rs. 94.66, the exchange rate prevailing as of June 30, 2026. Consolidated revenues stood at Rs. 8071 crores, which is US dollar's age 53 million, a decline of 5.6% year-over-year and a growth of 7.4% on a sequential basis. Strong performance across key markets, further aided by favorable forex, was offset by lower limit sales. Another revenues declined primarily due to change in operating Model Post Integration under which rebates and discounts are offered to distributors and recognized net of revenues as compared to the transition period when sales were managed by the seller Helian. This change in operating model is profit neutral. Consolidated gross profit margin was at 46.5%, a decrease of 1039 basis points year-over-year and an increase of 169 basis points sequentially. The decline in margins during the quarter was largely an account of lower limit sales, the semaglutide-API-related production mentioned earlier, as well as higher solvent costs on account of Middle East conflict. The reported gross margin was 51.6% for global generates and 4.5% for TSAI, excluding the semaglutide S.A. related profession mentioned earlier the overall margin was 49.4 while that for global index was 53.8 and for TSA was at 12.9%. The S.A. expense was at Rs. 2082 crores an increase of 12% and 4% sequentially accounting for 36% of revenues. The year-over-year increase was primarily driven by higher personal costs due to annual increments Adwords Forest Movement, targeted investments in the branded business as well as elevated freight costs arising from disruptions related to the Middle East crisis. The R&D spend was at Rs. 577 crores, declined by 8% year-over-year and up 6% sequentially, accounting for 7.1% of revenues and reflecting lower biosimilar development expenditure as compared to the previous year. The underlying EBITDA, including other income, stood at Rs. 1,009 crores for the quarter, which is US$ 1.07 million, a decrease of 14-16 basis points year-over-year and 55 basis points sequentially, reflecting a margin of 12.5% of the revenues, excluding the semi-bluetooth APA-related portion. The margin was at 15.4%. As a result, the profit before tax was Rs. 553 crores. That is 58 million US dollars representing a margin of 6.8%. Excluding the semi-glutted EPA related provisions, the margin was at 9.8%. Effective tax rate for the quarter was 21.3% compared to 26% in the corresponding period last year. The ETR for the quarter was lower primarily due to reversal of previously recognized tax provisions no longer required. and the favorable juridical mix for the quarter in comparison to the same period in the previous year. Profit after tax attributable to equity holders of the parent for the quarter stood at 443 crores which is 47 million US dollars, a margin of 5% to 5% on the revenues before adjusting for the semaglutide EPA related provision mentioned earlier. Diluted EPS for the quarter is Rs. 5.32. Operating working capital as of 30th June 2026 was 14,353 crores which is 1.52 billion US dollars, a decrease of 81 crores over 31st March 2026. CapEx cash outflow for the quarter stood at 307 crores which is $32 million US dollars. Cash flow during the quarter before acquisition related payout was negative 216 crores which is negative of 23 million. As of June 30th, 2026 we have a net cash surplus of 3057 crores which is 323 million. Foreign currency cash flow hedges executed through derivative instruments during the period are as follows. US dollar 354 million hedged using combination of Forwards Risk Reversal Options, scheduled to mature by March 2027. These contractors hedge at the rate of 92.34 to 94.63 per US dollar. Ruble 2.8 billion hedge at a fixed rate of 1.26 per Russian ruble, with maturity falling within the next three months. With this, I now request Erez to take us through The key business highlights.

Thank you NBN and good day for all of you. We appreciate you joining us today and thank you for your continued interest in our company. We remain consistent in our strategic priorities and committed to delivering growth and profitability through discipline execution as the operating environment continues to evolve. We are focused on strengthening our base business and building future growth engines in peptides, biosimilar, Consumer Health and Innovation while pursuing targeted business development initiatives to augment our organic growth efforts. The underlining base business delivered healthy double-digit growth across all key geographies, including North America. The quarter's EBITDA margins were adversely impacted by C-magnetized related challenges, including lower sales, provision for rejected batches, Loss of production, linked incentives, and other associated costs. As well as the conflict in the Middle East. Excluding this impact, we estimate that the EBITDA margin would have been in the high teens. We are working towards resolving the issue and are planning to resume semaglutide commercials applied by November. Importantly, there is no risk to any patient who has consumed the product. Patient safety and product quality remain Our highest priorities and will continue to guide us in every decision we make. We remain confident of a strong second half of the fiscal, with the resumption of semaglutite supplies. The strength of our base business and our ongoing productivity initiatives will continue to support double-digit base business growth and steady margin improvements. Let me now walk you through some of the key highlights of the quarter. We commercialize a few key complex generic products, including the anti-cancer drug Bosutinib, a first-to-market launch with 180 days of generic drug exclusivity for the 400 mg strains. and Nintedanim, a use in a treatment of lung disease in the United States. In Canada, we are the first company to secure approval for the launch of Simaglutide for the treatment of tractal diabetics. We launched Oral Simaglutides in India and remain committed to building this important metabolic franchise, complemented by nutrition offerings such as Elevita, GLP Plus, through our collaboration with Nestle. We continue to make progress bringing innovation to patients in undeserved markets through partnership, our in-license novel therapy, Plutonic Palimab. for treatment of nasopharyngeal carcinoma has entered the 100 CR Club in less than two years of launch in India. During the quarter, we partnered with Inoviva Specialty Therapeutics to develop and commercialize Xa-Eduro used in treatment of hospital-acquired bacterial pneumonia in selected markets across South and Central America, the Caribbean, Russia, and CIS countries. Through our collaboration with GARDP and our subsidiary, Origin Pharmaceutical Services, we achieved an important milestone in our access agenda by securing Thai FDA approval for Zolifluordacin, a first-in-class treatment for uncomplicated gonorrhea. The approval came just six months after the US FDA approval, making Thailand the first LMIC country to approve the product. On a regulatory front, the USFDA completed a pre-licensed inspection PLI at our biologics manufacturing facility in Bachupali, Hyderabad, in June 2026, and issued the Form 403 with seven observations, which we already responded well within the stipulated timelines. Our commitment to good governance and sustainability continues to be recognized globally. During the quarter, we celebrate 25 years of our New York Stock Exchange listing, reinforcement of our distinction as the first non-Indian pharmaceutical company listed at the exchange, as well as our commitment to global best practices in governance, compliance, and capital market access. FTSE Russell placed us as the top 1% worldwide while Times Statista ranked us 165th globally and 5th among Indian companies among the world's most sustainable companies. Let me take you to the key business highlights for the quarter. Please note that all the financial figures mentioned are reported in their respective local currencies. Our North America generic business recorded revenue of Thank you very much. New products in the region, including complex generics such as Bosotinib and Nintetanib. And we remain on track to bring more such products to the market as we progress through the year. Our branded franchise, including India Emerging Markets and Consumer Health Business, in equity in Replaced Therapy, or NRT, together accounted for 42% of overall revenues and remain an important source of stable margins for the company. Our emerging markets business recorded revenue of ₹1,833 accounting for 22% of our overall revenues and reflecting a robust growth of 31% year-on-year and 2% quarter-on-quarter. Growth was driven by new product launches across markets and favorable currency movements. During the quarter, we introduced 43 new products across countries. Our India-based revenues were 1,788 crores rupees, accounting for 21% of our overall revenues and delivering robust double-digit Eronil growth of 17% and 10% sequentially. This performance was primarily driven by the innovation franchise new launches including acquired brands, price increase and volume growth. IQ via June 2026 data highlights a continued outperformance of the Indian pharmaceutical markets and moving quarterly total growth of 14.6% versus 13.5% for the IPM in the moving annual total MIT growth of 13.5% versus 11.1% for the market. Our IPM rank stood at 9 for the quarter and 10 for the year. We launched seven new brands during the quarter, further enhancing our domestic presence. Our European business, which includes NLP, posted revenue of $131 million for the quarter, accounting for 18% of our overall revenues. Revenues were broadly in line with the corresponding period last year and declined 3% sequentially, on account of price erosion as well as the impact of operating model. Changes for CNRT integration explained by MDN offsetting the contribution from new product launches and generics. During the quarter, we launched 24 new generics products across market, further expanding our European product portfolio. Our PSAI business reported revenues of $91 million, accounting for 11% of the overall revenues. Revenues declined 5% year-over-year and 10% sequentially. Primarily on account of lower API volume uptake during the quarter, we filed 38 drug master files globally. We remain focused on strengthening our core business while building the next wave of growth across peptides by similar consumer health and innovation. We continue to advance key products such as Imagglutide and Abatacept, improve operational efficiency, and pursue value-accreting business development opportunities to drive long-term value creation. With that, I invite your questions as we move into the Q&A session.