Dr. Reddy’s Q2 FY12 Financial Results

Dr. Reddy’s Laboratories Ltd. (NYSE: RDY) today announced its unaudited consolidated financial results for the quarter ended September 30, 2011 under International Financial Reporting Standards (IFRS).

Key Highlights

• Consolidated revenues are at Rs 22.7 billion ($462 million) in Q2 FY12 versus Rs 18.7 billion ($381 million) in Q2 FY11, year-on-year growth of 21%. Consolidated revenues for H1 FY12 is at Rs 42.5 billion ($866 million).
  • Revenues from Global Generics for Q2 FY12 are at Rs 16.1 billion ($329 million). Year-on-year growth of 18% mainly driven by North America and Russia.
  • Revenues from PSAI are at Rs 5.9 billion ($121 million) in Q2 FY12, growth of 28% over previous year.

• Adjusted* EBITDA of Rs 5.1 billion ($104 million) in Q2 FY12, is at 23% of revenues recording year-on-year growth of 20%. Consolidated adjusted EBITDA for H1 FY12 is at Rs 9.4 billion ($193 million).
• Adjusted** Profit after Tax for Q2 FY12 is at Rs 3.1 billion ($63 million), is at 14% of revenues with year-on-year growth of 8%. Consolidated adjusted PAT for H1 FY12 is at Rs 5.6 billion ($115 million).
• During the quarter, the company launched 28 new generic products, filed 17 new product registrations and filed 11 DMFs globally.
• Dr. Reddy’s today announced the final approval of its olanzapine 20 mg tablets, the generic version of Eli Lilly’s Zyprexa® from the USFDA.

*Note: Adjustments include: benefit from a part reversal of provision booked in Q1 for Voluntary Retirement Scheme (VRS) floated by the company.

**Note: Adjustments include: a) interest on bonus debentures and b) benefit from a part reversal of provision booked in Q1 on account of Voluntary Retirement Scheme (VRS) floated by the company.

Segmental Analysis

Global Generics

Revenues from Global Generics segment are at Rs 16.1 billion ($329 million) in Q2 FY12 registering growth of 18% over previous year.

• Revenues from North America at Rs 6.3 billion in Q2 FY12 versus Rs 4.4 billion in Q2 FY11. Growth in USD terms of 45% was led by new product launches in the last twelve months and market share improvement in key products.
  • 5 new products launched during the quarter, including limited competition products such as fondaparinux and fexofenadine pseudoephedrine D24 OTC.
  • 24 products of our prescription portfolio feature among the Top 3 rank in market share (Source: IMS Sales Volumes July 2011).
  • During the quarter, 4 ANDAs were filed. The cumulative ANDA filings as of 30^th September, 2011 are 177. A total of 76 ANDAs are pending for approval with the USFDA of which 40 are Para IVs and 11 are FTFs.
• Revenues in Russia & Other CIS markets at Rs 3.4 billion in Q2 FY12 versus Rs 2.8 billion in Q2 FY11, year-on-year growth of 23%.
  • Revenues in Russia at Rs 2.9 billion in Q2 FY12 versus Rs 2.3 billion in Q2 FY11, year-on-year growth in USD terms of 30%, largely driven by volume growth in key brands.
    • OTC portfolio growth of 33% over previous year; OTC sales at 25% of overall Russia sales.
    • Dr. Reddy’s year-on-year secondary prescription sales growth at 20% versus industry’s growth of 10%. (Source: Pharmexpert August 2011). Dr. Reddy’s is ranked 12^th in market share.
  • Revenues in Other CIS markets remained flat at Rs 477 million in Q2 FY12.
• Revenues in India increased by 9% to Rs 3.5 billion in Q2 FY12 versus Rs 3.2 billion in Q2 FY11.

• 3 new products launched during the quarter.
• Biosimilar portfolio growth of 22% over previous year; represents 6% to sales.

• Revenues from Europe at Rs 2.1 billion in Q2 FY12, declined by 10% over previous year.
  • Revenues from Germany declined by 27% to Rs 1.2 billion in Q2 FY12 due to continuing impact of tenders.
  • Revenues from Rest of Europe grew by 26% to Rs 933 million in Q2 FY12 driven by new launches in UK and growth in out-licensing business.

Pharmaceutical Services and Active Ingredients (PSAI)

Revenues from PSAI are at Rs 5.9 billion in Q2 FY 12 versus Rs 4.6 billion in Q2 FY11, year-on-year increase of 28%.

• Growth in Active Ingredients business led by new product launches in Europe.
• Pharmaceutical Services business grew on account of improved customer order book status.
• During the quarter, 11 DMFs were filed globally, with 2 in US, 2 in Europe, 1 in Canada and 6 in rest of the markets. The cumulative DMF filings as of 30^th September 2011 are 506.

Income Statement Highlights:

• Gross profit at Rs 12.2 billion ($249 million) in Q2 FY12, margin of 54% to revenues, marginal increase over previous year.
• Selling, General & Administration (SG&A) expenses including amortization at Rs 7.2 billion ($147 million) increased by 26% over Q2 FY11. This increase is on account of a) higher freight costs both on account of increase in sales volumes as well as rate increases, b) inflation and year-on-year increments linked increase in manpower costs across businesses, c) incremental costs at Bristol and Shreveport manufacturing facilities in the US and d) the increase in the OTC-related selling and marketing costs in Russia and other CIS markets as compared to previous year.
• R&D expenses at Rs 1.5 billion ($30 million) in Q2 FY12, increase of 15% over Q2 FY11.
• Net Finance costs are at Rs 50 million ($1 million) in Q2 FY 12 versus Rs 35 million ($0.7 million) in Q2 FY11
  The change is on account of :
  • Net forex gain of Rs 151 million ($3 million) versus net forex loss of Rs 49 million ($1 million) in Q2 FY11.
  • Net interest expense of Rs 225 million ($5 million) in Q2 FY12 versus Rs 5 million ($0.1 million) in Q2 FY11.
  • Profit on sale of investments of Rs 25 million ($0.5 million) in Q2 FY12 versus Rs 19 million ($0.4 million) in Q2 FY11.
• Adjusted EBITDA of Rs 5.1 billion ($104 million) in Q2 FY12, is at 23% of revenues with year-on-year growth of 20%.
• Adjusted Profit after Tax for Q2 FY12 is at Rs 3.1 billion ($63 million), is at 14% of revenues with year-on-year growth of 8%.
• Adjusted EPS for Q2 FY 12 is at Rs 18.2 ($0.4) versus Rs 16.9 ($0.3) in Q2 FY11.
• Capital expenditure for H1 FY12 is at Rs 3.6 billion ($73 million).

About Dr. Reddy's

Dr. Reddy’s Laboratories Ltd. (NYSE: RDY) is an integrated global pharmaceutical company, committed to providing affordable and innovative medicines for healthier lives. Through its three business segments - Pharmaceutical Services and Active Ingredients, Global Generics and Proprietary Products – Dr. Reddy’s offers a portfolio of products and services including APIs, custom pharmaceutical services, generics, biosimilars, differentiated formulations and NCEs. Therapeutic focus is on gastro-intestinal, cardiovascular, diabetology, oncology, pain management, anti-infective and pediatrics. Focus markets include India, USA, Russia and CIS, Germany, UK, Venezuela, S. Africa, Romania, Australia and New Zealand.

For more information, log on to: www.drreddys.com

Disclaimer

This press release includes forward-looking statements, as defined in the U.S. Private Securities Litigation Reform Act of 1995. We have based these forward-looking statements on our current expectations and projections about future events. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially. Such factors include, but are not limited to, changes in local and global economic conditions, our ability to successfully implement our strategy, the market acceptance of and demand for our products, our growth and expansion, technological change and our exposure to market risks. By their nature, these expectations and projections are only estimates and could be materially different from actual results in the future.

Note: All discussions in this release are based on unaudited consolidated IFRS financials.