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Hyderabad, India, October 24, 2007  
 


Dr. Reddy’s Q2 FY08 revenue at Rs 12,670 million;
Net income at Rs 2,672 million;

Hyderabad, India, October 24, 2007: Dr. Reddy’s Laboratories Ltd. (NYSE: RDY) today announced its unaudited financial results for the quarter ended September 30, 2007.

  • Growth in revenues at 20% in dollar terms excluding the upsides from authorized generics in Q2 FY07 of Rs 7.8 billion ($196 mn)
  • Q2 FY08 Revenue at Rs 12.7 billion ($319 mn) as against Rs 20 billion ($504 mn) in Q2 FY07
  • Q2 FY08 PBT at Rs 1,422 million ($36 mn) as against Rs 3,531 million ($89 mn) in Q2 FY07
  • Q2 FY08 PAT at Rs 2,672 million ($67 mn) as against Rs 2,798 million ($70 mn) in Q2 FY07
  • Reversal of deferred tax liability related to betapharm results in a benefit of Rs 1.5 billion ($36.5 mn) in Q2 FY08


Q2 FY08 Key highlights

  • Revenues at Rs 12.7 billion ($319 mn) in Q2 FY08 as against Rs 20 billion ($504 mn) in Q2 FY07, representing a decrease of 37%
    • Revenues increase by 4% (in rupee terms) in Q2 FY08 after excluding the upsides from authorized generics in Q2 FY07.
  • Revenues in India (finished dosage) increase by 9% to Rs. 2 billion ($52 mn) in Q2 FY08 from Rs. 1.9 billion ($48 mn) in Q2 FY07 driven by growth in key brands and new product launches.
  • Revenues in Russia (finished dosage) increase by 25% to Rs. 980 million ($25 mn) in Q2 FY08 from Rs. 783 million ($20 mn) in Q2 FY07 driven by growth in key brands as well as contribution from new product launches in FY07.
  • Revenues from North America (finished dosages) increase by 63% to Rs 2 billion ($52 mn) excluding the benefit of upsides from authorized generics in Q2 FY07 of Rs 7.8 billion. Combined revenues from fexofenadine and finasteride at Rs 1.2 billion ($31 mn) during Q2 FY08.
  • Revenues from Germany (betapharm) at Rs. 1.9 billion ($47 mn) in Q2 FY08 as compared to Rs. 2.6 billion ($ 64 mn) in Q2 FY07. The decline in revenues is on account of ongoing supply constraints as well as rupee appreciation against the Euro.
    • As per INSIGHT August 2007, betapharm recorded a combined 28% growth in pharmacy volumes for July and August.
    • Around 20 products transferred out of Salutas including 6 to India; On track to transfer the key products out of Salutas by end of FY08
  • Revenues in the API business increase by 11.5% to Rs 3.2 billion ($82 mn) in Q2 FY08 from Rs 2.9 billion ($73 mn) in Q2 FY07 primarily driven by growth across key markets.
  • Revenues from organic segment of custom pharmaceuticals services business increase by 125% to Rs 528 million ($13 mn) in Q2 FY08 from Rs 234 million ($6 mn) in Q2 FY07.

 

 All figures in millions, except EPS
All dollar figures based on convenience translation rate of 1USD = Rs 39.75

 

EXTRACT FROM THE UNAUDITED INCOME STATEMENT

  Q2 FY 08   Q2 FY 07    
Particulars ($) (Rs.) % ($) (Rs.) % Growth %
Total Revenues (1) 319 12,670 100 504 20,039 100 (37)
Cost of revenues 155 6,170 49 296 11,750 59 47
Gross profit 164 6,500 51 209 8,288 41 (22)
Selling, General &
Administrative Expenses 		106 4,228 33 92 3,667 18 15
R&D Expenses (2) 20 810 6 10 402 2 101
Amortization Expenses 10 410 3 10 402 2 2
Other operating
(income)/expense net		 - 0.3 - (0) (2) 0 -
Forex Loss/(Gain) (6) (256) (2) (1) (55) 0 365
Operating income/(loss) 33 1,308 10 97 3,873 19 (66)
Equity in (loss)/ gain of affiliates
- 3.4 - (1) (21) 0 -
Other income/ (expenses) net 3 112 1 (8) (321) 2 -
Income before income
taxes and minority interest 		36 1,422 11 89 3,531 18 (60)
Income tax (expense)/benefit 31 1,248 10 (19) (737) 4 -
Minority interest - 1 - (0) (4) 0 (75)
Net income 67 2,672 21 70 2,798 14 (5)
DEPS 0.40 15.85     18.15    
Exchange rate   39.75     39.75    
Key Balance Sheet Items
  As on 30 Sept 07   As on 30 June 07    
Cash and cash equivalents 213 8,465   280 11,112    
Investment in securities (current & non-current)
 55 2,197   29 1,155    
Borrowing from banks
(Short + Long) 		411 16,351   385 15,290    
Accounts receivable net of
allowances		 211 8,390   179 7,127    
Inventories 242 9,620   212 8,426    
Property, plant and
equipment, net 		344 13,658   326 12,963    

  1. Q2 FY07 includes one-time revenue of Rs 7,808 million from authorized generics sales during the 6 month marketing exclusivity for simvastatin (Zocor®) and finasteride (Proscar®)
  2. Income recognition under Generics R&D partnership with ICICI Venture amounting to Rs 218 million in Q2 FY07 compared to nil in Q2 FY08. Reimbursement of expenses from Perlecan Pharma Private Limited of Rs. 27 million in Q2 FY 08 as against Rs 123 million in Q2 FY07.


SEGMENTAL ANALYSIS
Active Pharmaceutical Ingredients (APIs)
 
  • Revenues at Rs 3.2 billion in Q2 FY08 as against Rs 2.9 billion in Q2 FY 07, representing an increase of 11.5%.
  • Revenues in India at Rs 703 million in Q2 FY08 as against Rs 502 million in Q2 FY07 , representing an increase of 40%. This growth was driven by the increase in sales of ciprofloxacin, clopidogrel and ramipril.
  • Revenues in North America increase by 46% to Rs. 640 million in Q2 FY08 from Rs. 437 million in Q2 FY07 driven by combination of new launches as well as new products under development.
  • Revenues in rest of the world markets decrease by 9% to Rs. 1.3 billion in Q2 FY08 from Rs. 1.4 billion in Q2 FY07. The impact of higher sales from supplies of sertraline during 180-day exclusivity in Q2 FY07 partially offset by the increase in revenues from Japan and other markets.
  • The Company filed 3 US DMFs during the quarter taking the total filings to 110.
 
Generic Finished Dosages
 
  • Revenues in this segment at Rs 4.4 billion in Q2 FY08 as against Rs 12.1 billion in Q2 FY07.
  • North America contributed 47% and Europe contributed 53% to the segment revenues.
  • In North America, revenues at Rs. 2 billion in Q2 FY08 as against Rs. 9 billion in Q2 FY07. Q2 FY07 included Rs 7.8 billion in upside revenues from the authorized generics products. Excluding these revenues in Q2 FY07, the revenues increase by 63% from Rs 1.3 billion in Q2 FY07 to Rs 2 billion in Q2 FY08.
    • Revenues from fexofenadine, generic version of Allegra® at Rs. 586 million. Currently, the Company’s market share is about 46%.
    • Revenues from finasteride, generic version of Proscar® at Rs. 631 million. This includes the revenues from commencement of supplies to the US government department.
  • In Europe revenues decrease to Rs. 2.3 billion in Q2 FY08 compared to Rs. 3 billion in Q2 FY07.
    • Revenues from betapharm (Germany) at Rs. 1.9 billion in Q2 FY08 as compared to Rs. 2.6 billion in Q2 FY07. This decline is on account of the ongoing supply constraints as well as rupee appreciation against the Euro.
    • Key new product launches in the first six months include oxycodone, finasteride and amlodipine besylate. Oxycodone is performing extremely well contributing 7% of betapharm revenues with a market share of 8%.
    • As per INSIGHT August 2007, betapharm recorded a combined 28% growth in pharmacy volumes for July and August.
    • Revenues from rest of Europe at Rs. 439 million in Q2 FY08 as against Rs 472 million in Q2 FY07.
  • In Q2 FY08, the Company filed 1 ANDA taking the total filings in the first six months to 9. The Company also received approval (including tentative) for 8 ANDAs.
 
Branded Finished Dosages - International
  • Revenues at Rs 1.8 billion in Q2 FY08, an increase of 27% over Q2 FY07. This increase was driven by growth across key markets.
  • Revenues in Russia increased by 25% to Rs. 980 million in Q2 FY08 as against Rs. 783 million in Q2 FY07. This growth was primarily driven by increase in sales from key brands of Keterol, Enam, Cetrine and Omez as well as the contribution from new products launched during FY07.
  • Revenues in CIS markets increase by 34% to Rs 322 million in Q2 FY08 as against Rs 241 million in Q2 FY07. This growth was primarily driven by increase in sales across key markets.
 
Branded Finished Dosages - India
  • Revenues at Rs 2.0 billion in Q2 FY08 as compared to Rs. 1.9 billion in Q2 FY07, representing an increase of 9%. This growth was primarily driven by growth in key brands of Omez, Stamlo Beta, Atocor and Razo.
  • Reditux launched in April, contributed Rs 33 million in revenues in Q2 FY08.
  • During the quarter, Razo-D, our brand of rabepraozle and domperidone, combination emerged as the market leader in this product category. Leon, our brand of levofloxacin, moved to the 4th position despite being a late entrant in this product category.
  • As per ORG IMS August MAT 2007, the company (growth of 15.6%) outperformed the market growth rate of 13.4%.
 
Custom Pharmaceutical Services (CPS)
 
  • Revenues from CPS at Rs. 1.2 billion in Q2 FY08 as compared to Rs 1.7 billion in Q2 FY07.
    • Revenues from CPS organic business increase by 125% to Rs 528 million in Q2 FY08 from Rs 234 million in Q2 FY07.
    • Revenues from Mexico decrease by 56% to Rs. 632 million in Q2 FY08 as compared to Rs. 1.4 billion in Q2 FY07.
 
Income Statement Highlights
  • Gross profits at Rs. 6.5 billion in Q2 FY08 as against Rs. 8.3 billion in Q2 FY07. Gross profit margins on total revenues at 51% as against 41% in Q2 FY07. In Q2 FY07, revenues from authorized generics contributed 39% to total revenues and earned gross margins significantly below company average gross margin.
  • R&D investments (net) at 6% of total revenues as against 2% in Q2 FY07. Gross R&D investments increase by 13% to Rs 837 million as against Rs 743 million in Q2 FY07. In Q2 FY07, the Company recognized Rs. 341 million under its R&D partnerships as a benefit to the R&D line item as compared to Rs. 27 million in Q2 FY08.
  • Selling, General & Administration (SG&A) expenses increase by 15% to Rs 4.2 billion. As % to revenues, the SG&A ratio to sales is at 33% in Q2 FY08. This increase is the result of certain expenses spilling over from the first quarter coupled with certain exceptional items in Q2 FY08.
  • Forex gain of Rs 256 million in Q2 FY08 as compared to a gain of Rs 55 million in Q2 FY07.
  • Amortization at Rs. 410 million as compared to Rs. 402 million in Q2 FY07. This includes amortization relating to intangibles in betapharm, Spain (acquisition of products) and acquisition in Mexico.
  • Income tax line item includes the benefit of the reduction in deferred tax liability relating to betapharm of Rs. 1.5 billion. This reduction is primarily on account of lowering of the tax rate to 30% from 39% at the time of acquisition.
  • Net income at Rs 2,672 million (21% of total revenues) as against Rs 2,798 million (14% of total revenues) in Q2 FY07. This translates to a diluted EPS of Rs 15.85 as against Rs 18.15 in Q2 FY07.
 
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.
 

Contact Information

Investors and Financial Analysts:

Nikhil Shah at nikhilshah@drreddys.com or on +91-40-23731946 ext. 308

Media

M Mythili at mythilim@drreddys.com or on +91-40-66511620

Notes

1. In line with global disclosure standards, the company commenced reporting its financials on a consolidated basis since Q2 FY03.

2. Current quarter financial discussions below are on a consolidated basis as per the US GAAP.

3. Detailed analysis of the financials is available on the Company’s website at www.drreddys.com