Dr. Reddy's Q3 FY08 Revenue at Rs 12,320 Million; EBITDA at Rs 2,037 Million

Dr. Reddy’s Laboratories Ltd. (NYSE:RDY) today announced its unaudited financial results for the third quarter ended December 31, 2007. Growth in Q3 FY08 revenues at 8% over Q3 FY07; Excludes the upsides from authorized generics and ondansetron exclusivity in Q3 FY07 Q3 FY08 Revenue at Rs 12.3 billion ($313 mn) as against Rs 15.4 billion ($392 mn) in Q3 FY07. Q3 FY08 EBITDA at Rs 2,037 million ($52 mn) as against Rs 2,850 million ($72 mn) in Q3 FY07 Improvements in the supply situation at betapharm (Germany) and higher contribution from products that have been transferred to India. However, due to impact of several price reforms, increasing rebates to insurance companies and change in the composition of our top products, the Company has taken an additional amortization of certain product related intangibles of betapharm of Rs 2,361 million ($60 mn) This has resulted in Q3 FY08 PAT being Rs (847) million [$(21) mn] as against Rs 1,879 million ($48 mn) in Q3 FY07 Without the additional amortization, the Company’s Q3 FY08 PAT would have been at Rs 1,034 million ($26 mn) Note: With effect from Q1 FY08, the rebate payments to insurance companies in Germany are being adjusted in the revenue line item in line with the recommendation of our statutory auditors. Revenue from betapharm in Q3 FY08 as reported reflects such adjustment pertaining to Q3 FY08 only. Q3 FY08 Key highlights --   Revenues at Rs 12.3 billion ($313 mn) in Q3 FY08 as against Rs 15.4 billion ($392 mn) in Q3 FY07, representing a decrease of 20%.   -- On a like-to-like comparison, Revenues increase by 8% (in rupee terms) in Q3 FY08.   -- Revenues in India (finished dosage) increase by 16% to Rs. 2 billion ($51 mn) in Q3 FY08 from Rs. 1.7 billion ($44 mn) in Q3 FY07 driven by growth in key brands and new product launches.   -- Revenues in Russia (finished dosage) increase by 12% to Rs. 1 billion ($28 mn) in Q3 FY08 from Rs. 976 million ($25 mn) in Q3 FY07 driven by growth in key brands as well as contribution from new product launches.   -- Revenues from North America (finished dosages) increase by 69% to Rs 1.7 billion ($44 mn) excluding the benefit of upsides from authorized generics and ondansetron exclusivity in Q3 FY07 of Rs 3.6 billion. Combined revenues from fexofenadine and finasteride at Rs 823 million ($21 mn) in Q3 FY08.   -- Revenues in the API business increase by 8% to Rs 2.9 billion ($74 mn) in Q3 FY08 from Rs 2.7 billion ($69 mn) in Q3 FY07 primarily driven by growth across key markets.   -- Revenues from organic segment of custom pharmaceuticals services business increase by 24% to Rs 456 million ($12 mn) in Q3 FY08 from Rs 368 million ($9 mn) in Q3 FY07.   -- Revenues from Germany (betapharm) at Rs. 2 billion ($52 mn) in Q3 FY08 as compared to Rs. 2.6 billion ($68 mn) in Q3 FY07. This decline is the result of (a) adjustment of rebate payments to insurance companies from revenues in Q3 FY08 and (b) ongoing supply constraints, year-on-year price declines as well as rupee appreciation against the Euro.   -- Starting December 2007, two key products of simvastatin and omeprazole have been shipped from India to Germany; The Company is making good progress with the transfer of products out of our major supplier and till date, 33 products have received site transfer approvals including 6 to India. Commenting on the results, GV Prasad, Vice-Chairman and CEO of Dr. Reddy’s Laboratories, said, "In the first nine months of the current fiscal, on a like-to-like comparison, we have grown revenues by 9% to $932 million and generated an EBITDA of $ 218 million. We remain confident of the outlook for the next financial year. We expect sustained profit and sales growth in APIs and the branded generics business in India and Russia. We expect to benefit from the upside potential from the launch of sumatriptan (GSK’s Imitrex) in the U.S. in Q3 FY09. Germany is an important market for Dr. Reddy’s and we remain committed to building a profitable business over the next few years. Our immediate priority is to de-risk the supply situation and we are making good progress with the transfer of products out of our major supplier to our facility in India and to other manufacturers within Europe. Despite the competitive pressures in this market, we will target to improve the market shares on the back of assured supplies, new launches and cost savings from the transfer of key products out of India.” All figures in millions, except EPS All Dollar figures based on convenience translation rate of 1 USD = Rs 39.41      EXTRACT FROM THE UNAUDITED INCOME STATEMENT             Q3 FY08   Q3 FY07     Particulars ($)   (Rs.) % ($)   (Rs.) % Growth % Total Revenues 313 12,320 100 392 15,434 100 (20) Cost of revenues 159 6,285 51 221 8,690 56 (28) Gross profit 153 6,034 49 171 6,744 44 (11) Selling, General & Administrative Expenses 95 3,760 31 91 3,604 23 4 R&D Expenses (1) 23 894 7 17 676 4 32 Amortization Expenses 10 379 3 8 330 2 15 Write-down of intangible assets 60 2,361 19 - - - - Other operating (income)/expense net 0 (1) 0 (1) (21) 0 (93) Forex Loss/ (Gain) (2) (87) (1) 1 49 0 - Operating income/(loss) (32) (1,271) (10) 53 2,105 14 - Equity in (loss)/gain of affiliates 0 3 0 (0) (12) 0 - Other income/(expense) net 1 39 0 (6) (241) (2) - Income before income taxes and minority interest (31) (1,230) (10) 47 1,852 12 - Income tax (expense)/benefit 10 380 3 1 27 0   Minority interest 0 3 0 - 0 0   Net income (21) (847) (7) 48 1,879 12 - DEPS   (5.04)     11.73     Exchange rate   39.41     39.41     Key Balance Sheet Items       As on31 Dec 07   As on30 Sept 07     Cash and cash equivalents 158 6,244   214 8,445     Investment in securities (current & non-current) 108 4,252   56 2,197     Borrowings from banks(Short + Long) 433 17,073   415 16,351     Accounts receivable, net of allowances 197 7,757   213 8,390     Inventories 262 10,326   244 9,620     Property, plant and equipment, net 374 14,748   346 13,658       (1) Income recognition under Generics R&D partnership with ICICI Venture amounted to Rs 77 million in Q3 FY07 compared to Rs nil in Q3 FY08. Reimbursement of expenses from Perlecan Pharma Private Limited of Rs. 16 million in Q3 FY 08 as against Rs 79 million in Q3 FY07. SEGMENTAL ANALYSIS Active Pharmaceutical Ingredients (APIs) Revenues at Rs 2.9 billion in Q3 FY08 as against Rs 2.7 billion in Q3 FY 07, representing an increase of 8%. Revenues in India at Rs 566 million in Q3 FY08 as against Rs 482 million in Q3 FY07, representing an increase of 17%. This growth was driven by the increase in sales of ciprofloxacin, and ramipril. Revenues in North America increase by 89% to Rs. 999 million in Q3 FY08 from Rs. 527 million in Q3 FY07 driven by combination of new launches as well as new products under development. Revenues in Europe increase by 26% to Rs. 649 million in Q3 FY08 from Rs. 515 million in Q3 FY07 driven by combination of new launches as well as new products under development. Revenues in rest of the world markets decrease by 40% to Rs. 722 million in Q3 FY08 from Rs. 1.2 billion in Q3 FY07. The impact of higher sales from supplies of sertraline during 180-day exclusivity in Q3 FY07 partially offset by the increase in revenues from Japan and other markets in Q3 FY08. The Company filed 7 US DMFs during the quarter taking the total filings to 117. Generic Finished Dosages --   Revenues in this segment at Rs 4.2 billion in Q3 FY08 as against Rs 7.7 billion in Q3 FY07.   -- North America contributed 42% and Europe contributed 58% to the segment revenues.   -- In North America, revenues at Rs. 1.7 billion in Q3 FY08 as against Rs. 4.6 billion in Q3 FY07. Q3 FY07 included Rs 3.6 billion in revenues from the authorized generics products for which exclusivity ended in December 2006 and ondansetron exclusivity revenues, which commenced towards the end of December 2006. Excluding these revenues in Q3 FY07, the revenues increase by 69% from Rs 1 billion in Q3 FY07 to Rs 1.7 billion in Q3 FY08.   -- Revenues from fexofenadine, generic version of Allegra(R) at Rs. 395 million.   -- Revenues from finasteride, generic version of Proscar(R) at Rs. 428 million.   -- During the quarter, the company launched 2 new products; omeprazole and amlodipine besylate.   -- In Europe revenues decrease to Rs. 2.4 billion in Q3 FY08 compared to Rs. 3 billion in Q3 FY07.   -- Revenues from betapharm (Germany) at Rs. 2.0 billion in Q3 FY08 as compared to Rs. 2.7 billion in Q3 FY07. This decline is the result of (a) adjustment of rebate payments to insurance companies from revenues starting Q1 FY08 and (b) ongoing supply constraints, year-on-year price declines as well as rupee appreciation against the Euro.   -- During the quarter, the company was among the first few to launch olanzapine tablets pending a final court decision. The company also launched risperidone film coated tablets.   -- Revenues from rest of Europe at Rs. 385 million in Q3 FY08 as against Rs 371 million in Q3 FY07.   -- In Q3 FY08, the Company filed 5 ANDA taking the total filings this year to 14. The Company also received approval (including tentative) for 18 ANDAs. Branded Finished Dosages - International Revenues at Rs 1.9 billion in Q3 FY08, an increase of 12% over Q3 FY07. This increase was driven by growth primarily in Russia and CIS markets. Revenues in Russia increase by 12% to Rs. 1,094 million in Q3 FY08 as against Rs. 976 million in Q3 FY07. This growth was primarily driven by increase in sales from key brands of Keterol and Omez as well as the contribution from new products launches. During the quarter, the company launched Irinotecan injection. Revenues in CIS markets increase by 25% to Rs 409 million in Q3 FY08 as against Rs 327 million in Q3 FY07. This growth was primarily driven by increase in sales across key markets. Branded Finished Dosages - India Revenues at Rs 1.9 billion in Q3 FY08 as compared to Rs. 1.7 billion in Q3 FY07, representing an increase of 16%. This growth was primarily driven by growth in key brands of Omez, Stamlo, Stamlo Beta, Razo and Atocor and the launch of Reditux. As per ORG IMS November MAT 2007, the company recorded a growth of 13% against the market growth rate of 12.3%. Custom Pharmaceutical Services (CPS) --   Revenues from CPS at Rs. 1.3 billion in Q3 FY08 as compared to Rs 1.6 billion in Q3 FY07, representing a decline of 18.5%.   -- Revenues from CPS organic business increase by 24% to Rs 456 million in Q3 FY08 from Rs 368 million in Q3 FY07.   -- Revenues from Mexico decrease by 31% to Rs. 823 million in Q3 FY08 as compared to Rs. 1.2 billion in Q3 FY07. Income Statement Highlights Gross profits at Rs. 6 billion in Q3 FY08 as against Rs. 6.7 billion in Q3 FY07. Gross profit margins on total revenues at 49% as against 44% in Q3 FY07. In Q3 FY07, revenues from authorized generics contributed 22% to total revenues and earned gross margins significantly below company average gross margin. In Q3 FY08, the gross profit margin is lower than the H1FY08 average on account of rebate payments to insurance companies in Germany adjusted in net revenues and change in business mix. R&D investments (net) at 7% of total revenues as against 4% in Q3 FY07. Gross R&D investments increase by 9% to Rs 910 million as against Rs 832 million in Q3 FY07. In Q3 FY07, the Company recognized Rs. 156 million under its R&D partnerships as a benefit to the R&D line item as compared to Rs. 16 million in Q3 FY08. Selling, General & Administration (SG&A) expenses increase by 4% to Rs 3.8 billion. As % to revenues, the SG&A ratio to revenue is at 31% in Q3 FY08. Forex gain of Rs 87 million in Q3 FY08 as compared to a loss of Rs 49 million in Q3 FY07. Amortization at Rs. 379 million in Q3 FY08 as compared to Rs. 330 million in Q3 FY07. Additional amortization of certain product related intangible assets of betapharm of Rs. 2,361 million in Q3 FY08. Net income at Rs (847) million as against Rs 1,879 million in Q3 FY07. This translates to a diluted EPS of Rs (5.04) as against Rs 11.73 in Q3 FY07. General information The following item was considered and adopted by the Board of Directors of Dr. Reddy’s Laboratories today: Raise of further equity by way of preferential issue of share warrants up to 5% of the existing equity of the Company exercisable into equal number of equity shares of Rs.5 each to the Promoters / Promoter Group as per "Guidelines on Preferential Issues” under Chapter XIII of the SEBI (DIP) Guidelines, 2000, subject to the shareholders approval. About Dr. Reddy's Established in 1984, Dr. Reddy's Laboratories (NYSE:RDY) is an emerging global pharmaceutical company with proven research capabilities. The Company is vertically integrated with a presence across the pharmaceutical value chain. It produces finished dosage forms, active pharmaceutical ingredients and biotechnology products and markets them globally, with focus on India, US, Europe and Russia. The Company conducts research in the areas of cancer, diabetes, cardiovascular, inflammation and bacterial infection. 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. Notes 1. Current quarter financial discussions below are on a consolidated basis as per the US GAAP. 2. Detailed analysis of the financials is available on the Company’s website at www.drreddys.com.