Dr. Reddy's Laboratories Q4 23/24 Earnings Call Transcript

Quartr
Provided by Quartr
May 7, 2024

There are 10 speakers on the call.

Operator

Ladies and gentlemen, good day and welcome to the Q4 and Full Year FY 'twenty four Earnings Conference Call of Doctor. Reddy's Laboratories Limited. Please note that this conference is being recorded. I now hand the conference over to Ms. Richa Periwal.

Operator

Thank you and over to you, ma'am.

Speaker 1

Thank you. A very good morning and good evening to all of you and thank you for joining us today for the Doctor. Razi's earnings conference call for the quarter and full year ended March 31, 2024. Earlier during the day, we have released our results and the same is also posted on our website. This call is being recorded and the playback and transcript shall be made available on our website soon.

Speaker 1

All the discussions and analysis of this call will be based on the IFRS consolidated financial statements. The discussion today contains certain non GAAP financial measures. For the reconciliation of GAAP to non GAAP measures, please refer to our press release. To discuss the business performance and outlook, we have the leadership team of Doctor. Redeep comprising Mr.

Speaker 1

GV Prasad, our Co Chairman and Managing Director Mr. Erez Ghonwain, our CEO Mr. Parag Agwain, our CFO and the entire Investor Relations team. Please note that today's call is a copyrighted material of Doctor. Reddy's and cannot be rebroadcasted or attributed in press or media outlets without the company's expressed written consent.

Speaker 1

Before I proceed with the call, I'd 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 Mr. GV Prasad. Over to you, sir.

Speaker 2

Thank you, Richa. Good morning and good evening to all the participants here. Welcome to the annual earnings call of Doctor. Nadeep. I am delighted to be here today along with the members of the management team and the IR team.

Speaker 2

As many of you know, I will join the earnings call in chairs at the end of the financial year. FY 'twenty four marks our 40th year of serving patients with the legacy of innovation, affordability and sustainability. Guided by our purpose of accelerating access affordable and innovative medicines for our patients, in the last 4 decades, we have moved from our beginning as an API business to generative OTC medicine, biosimilars, drug discovery and services. As we bring to life our credo of good health can't say, we have accelerated our journey through licensing and collaboration in the areas of novel medicines and consumer health. We delivered strong financial results in FY 2024.

Speaker 2

Our growth and profitability in this year has been driven by our performance in the U. S. We have also made significant progress from future growth drivers through licensing, collaboration and pipeline trading. Our focus in 2025 will be to further strengthen our core businesses through superior execution as we invest in to build the future growth drivers. I am grateful to our people, the healthcare community, partners and stakeholders for the trust that goes in us.

Speaker 2

We are committed to increasing the number of patients we serve around the world through our exciting pipeline of products and services. As we do this, we remain committed to the elements of sustainability, preserving the environment, positive social impact and good governance. With this, I'd like to hand over the call to Parag for taking you through the financial performance of the company.

Speaker 3

Thank you, Prashad. Greetings to everyone and I hope you are doing well. I am pleased to take you through our financial performance for quarter 4 as well as for the full year of fiscal 2024. As indicated earlier by Prasad, FY24 has been yet another year of outstanding financial performance with all time high revenues of over US3.3 billion dollars and highest ever profit. This system quarter a double digit growth in revenue, EBITDA as well as PAT.

Speaker 3

For this section, all amounts have been translated into U. S. Dollar at a convenience translation rate of INR 83.34, which is the rate as of March 31, 2024. Consolidated revenues for the 4th quarter stood at INR 7083 crores, which is US850 million dollars and grew by 12% on a year on year basis with a sequential decline of 2%. Adjusted for brand divestment income in India and a rebased competitor, the underlying overall growth was higher at 17% on year on year basis.

Speaker 3

The underlying year on year growth is largely driven by the generic business in U. S. And Energy Markets. The Q2 decline is mostly on account of declining revenues from Russia, the U. S.

Speaker 3

And India. The revenue for the financial year 2024 stood at INR 27,916 crores that is US3.35 billion dollars and grew by 14%. The growth was primarily driven by improvement in the base business volumes across several geographies. Consolidated gross profit margin stood at 58.6% for the quarter, an increase of 140 basis points over previous year and 7 basis points sequentially. The year on year increase was on accounted improvement in product mix and productivity mix cost savings, partially offset by brand divestment income during the previous period.

Speaker 3

Gross margins of Global Generics and PSCI were up 16% and 28.6% respectively. Consolidated gross margin for FY 'twenty four stood at 58.6%, an increase of 193 basis points over FY 'twenty three. Gross margin for the Global Beverage and CSI Business was 62.9% and 23.2%, respectively, for full fiscal FY 'twenty four. SG and A expense for the quarter is RMB 2,000 and 48 gross, which is US346 $1,000,000 an increase of 14% year on year and 1% quarter on quarter. The year on year increase is primarily on account of investment in sales and marketing activities and new business initiatives.

Speaker 3

The SG and A cost as percentage of sales were 28.9% and is higher by 34 basis points year on year and 87 basis points quarter on quarter. The SG and A spend for the year is received INR7700, that is 956,000,000 and has grown by 13%, largely in line with the business growth. The estimated cost as a percentage to sales was 27.7%, which is in line with the previous year. While we continue to invest in strengthening our existing brands in digitalization initiatives, expanding new businesses to create future growth platforms and developing our talents, we are focused on operational excellence and productivity improvement across all aspects of our operations. We continue to invest in R and D to support future business growth.

Speaker 3

The R and D spend for the quarter is between INR 6 APH crores, which is $83,000,000 an increase of 28% year on year and 24% quarter on quarter. The R and D spend is at 9.7% of sales and is higher by 119 basis points year on year 200 basis points quarter on quarter. The R and D spend for FY24 is between INR2,287 crores that is US274 $1,000,000 and has grown by 18%. R and D percentage to sales for the year stood at 8.2% as it reached 7.9% during the last fiscal year. The increase is primarily on account of higher number of filings and our developmental efforts to building a healthy pipeline of complex products across our markets for both small molecules and biosimilars.

Speaker 3

The other operating income for the quarter has decreased INR66 crores as compared to increased INR328 crores for the same quarter last year. The other operating income for the fiscal is INR4.20 crores as compared to INR5.91 crores last year. The other operating income was lower on account of one time settlement income reported in the previous year. The EBITDA for the quarter received INR1872 crores that is $225,000,000 a growth of 15% year on year and a decline of 11% quarter on quarter. The EBITDA margin stood at 26.4 percent and is higher by 53 basis points year on year and grew by 2.63 basis points quarter on quarter.

Speaker 3

The EBITDA for the year has decreased INR 8,301 crores that is US996 million dollars resulting in growth of 14%. EBITDA margin for the year is at 29.7%, which is largely in line with the previous year. The net finance income for the quarter has received INR183 crores as compared to INR80 crores for the same quarter last year. The net finance income for FY24 stood at INR 3.99 crores as compared to INR 285 crores last year. Profit before tax for the quarter is clear to INR1602 crores that is US192 million dollars a growth of 21% year on year and a decline of 12% over previous quarter.

Speaker 3

Profit before tax for the year stood at INR57,187 crores that is US852 dollars m, recording a year on year growth of 19%. Effective tax rate for the quarter has been lower at 18.4%, and that for the year has been at 22.5%. The EPR during the quarter is lower due to a one time benefit accruing on account of reversal of a tax provision, re measurement of deferred tax assets owing to an increase in U. S. State tax liability and adoption of corporate tax rates under Section 115baa of the Income Tax Act.

Speaker 3

The EPI was lower for full fiscal year 24, mainly due to adoption of corporate tax rate under Section 115 Baa of the income tax act of India. We expect our normal EPR to be in the range of 24% to 25%. Profit Architect for the quarter stood at INR 1307 crores, which is with $157,000,000 posting a growth of 36% year on year and a decline of 5% over previous quarter. Profit after tax for the year is still at INR 5,559 crores that is US68 million dollars or year on year growth of 24%. Reported EPS for the quarter is INR 78.4 and that for the year is INR234.

Speaker 3

Operating working capital as of 31 March 2024 was INR 11,000 two ninety three crores, which is US1355 million dollars an increase of INR 4.62 crores, which is US58 $1,000,000 over December 31, 2023. The increase is mainly driven by higher inventory and receivables. Our capital investment in this quarter still has received INR503 crores which is US60 $1,000,000 and RMB1518 crores, which is US160 $1,000,000 during the year. The free cash flow generated during this quarter was RMB5.99 crores, which is worth over $63,000,000 The free cash flow generated during this year before acquisition related payout was at INR2672 crores, which is US321 million dollars Consequently, we now have a net surplus cash of INR6,459 that is US775,000,000 as on March 31, 2024. Foreign currency cash flow hedges in the form of derivatives for the U.

Speaker 3

S. Dollar are $903,000,000 held around a rate of 80 $83,600,000 $84,200,000 to the dollar maturing over the next 12 months with nothing available which allows participation when U. S. Distancing and for the ruble, our ruble 2,550,000 at the rate of RUB0.882 to the ruble maturing in the next 3 months. With this, I now request Erase and take us through the key business highlights.

Speaker 4

Thank you, Farag, and very good morning or good evening to everyone on the line. FR24 has been a year of focus across our businesses. We focused on our strengths, while also identifying and maximizing opportunities to diversify and differentiate as our business, leveraging new technologies and driving efficiencies. Boxed already delivered a strong full year performance with the highest revenue and EBITDA. Let me take you through some of the key highlights of the year as well as most recent quarter.

Speaker 4

1, we had double digit revenue growth in Q4 at 12% and for the full year at 14%. Our reported EBITDA margin stood at 26% plus for the quarter, whereas we ended the full year at the robust 30% plus. We delivered higher returns with our annualizing ROCE at 35.5%. Net cash surplus was RMB775,000,000 as we exited the year. We have consistently maintained the strategic collaboration and we play an important role in our growth story.

Speaker 4

Apart from growing our core business of generics, we invested in businesses of the future under the 3 spaces of consumer health, digital therapeutics and access to novel molecules. Recently, we have joined hands with the global FMCG giant Neste to form a joint venture company to bring pharmaceuticals to consumers in India. The JV will leverage the trusted global brands of Nestle and Healthcare brands and the well established commercial capabilities of Doctor. Reddy's in India. In Q4, we entered into an exclusive partnership with Sanofi to market and distribute its vaccine brands in India.

Speaker 4

This has taken us to the 2nd position among vaccine players. Our partnership with Bayer in India for the 2nd range of the molecules to the VARISSA growth, brings this new class of drugs in heart failure management to patients in India. In and beyond in the networks in Tier 1 and Tier 2 towns and threatens our play in the chronic segment. Our partnership with Thomas enabled us to market setaquim in India, which has demonstrated significantly better and promising outcomes in the management of hypovolemic shock. Our long running strategic collaboration with Elgin was recently strengthened with an agreement to bring to India a romosutumab injection under the brain's EVENITY, which is used to treat osteoporosis in women after menopause who are at high risk of partial.

Speaker 4

As part of our self care and wellness business in United States, we acquired Venulab, a portfolio of women dietary supplement brands from Amiris Inc. We entered the UK consumer health market with the launch of allergy medication, Isdalai. We launched vivatishimab, our first biosimilar in the U. K. In the digital therapeutic space, after successful launch in India, the drug free migraine management device, Melivio, has now been extended to Europe, starting with Germany and also to South Africa.

Speaker 4

Further, we have launched condition management program in India called Daily Loom IDS, India's first ever digital integrated care plan to manage irritable bowel syndrome. In 2023, we are undertaking a pilot launch of direct to consumer e commerce Web site, Aveda Wellness for diabetes nutrition. We have decided to wind down the pilot to repurpose our resources to other initiatives. On the regulatory front, the USFDA has provided a DAI status of 2 of our facilities in Baxupolay, Ido Dagh, our formulation manufacturing facility FQ3, following the OTC GMP inspection in October 2023 as well as our R and D facility following the GMP and preapproval inspection in December 2023. The U.

Speaker 4

S. FDA has issued a complete response letter to our Biologics license application. This has no impact on the development or manufacturing of any product pipeline. We will continue to work closely with the U. S.

Speaker 4

FDA to address and resolve all concerned within stipulated timelines. We have delivered consistent industry leading performance across key ESG ratings. We have been including in the S&P Global Sustainability Yearbook 2024 for the 4th consecutive year, making it to the top 10% score category for the first time. We received an A rating in CDP supply investments, which is in the leadership end. Also, we are the only Indian pharma company to get an A- rating in climate change and water security for our 20.3 CDP disclosures.

Speaker 4

Through all these efforts, including the learnings from the challenges, we remain committed to meet the unmet needs of patients and to enhance the standard of care. We continue to be a powerful choice given our commercial strength and footprint, our stronger governance, ESG and progressive people practices and of course, our financial discipline. Now let me take you through the key business highlights for the quarter and the full year. Please note that all references to the numbers in these sections are in respective local currencies. Our North America generic business recorded revenue of $392,000,000 for the quarter with a growth of 26% on year over year and a sequential decrease of 3%.

Speaker 4

On a full year basis, we recorded revenues of $1,508,000,000 with a growth of 24% over the previous year. The increase was largely on account of market share expansion in certain key products, integration of the acquired bank portfolio and for exchange. This partially offset by price erosion. We launched 5 new products during the quarter and a total of 21 products this fiscal. We expect the launch momentum to continue in April 25.

Speaker 4

Our European generic business recorded revenues of R58 1,000,000 this quarter with year on year growth of 3 and sequential growth of 4%. On a full year basis, the revenues were R228 1,000,000, a record growth of 9%. The improvement in the business volume and contribution from new product launch in this helped offset price erosion. During the quarter, we launched a total of 6 products across markets, taking the aggregate launch in Europe for the fiscal 242. Our emerging market generic business recorded revenues of INR1209 crores in Q4, year over year growth of 9% and a sequential decline of 6%.

Speaker 4

On a full year basis, the emerging market revenue INR3864 crores, a growth of 7% on year to year business market share expansion and revenue from new products more than offset the unfavorable points. We launched 17 new products during the quarter across various countries of the emerging markets, a total of 106 products in FY 2024. Within the segment, the Russia business grew by 9% on a year to year basis, but declined 13% sequentially in constant currency. Similarly, on a full year basis, Russia grew 16%. Excluding the income from brands diverted last year, India business recorded a double digit year on year growth of 11% in Q4, a sequential decline of 5% and 5.5% growth for the fiscal.

Speaker 4

After IQVIA, our IPN rank was 10 for the quarters and 11 for April 24. Including the divestment income, our India business recorded revenue of INR1127 crores in Q4 with a year to year decline of 12%. On a full year basis, revenue were INR4641 crores, a decline of 5% over the previous year. Our focused brand approach capital of sales rep productivity improvement is led to steady improvement in our performance during the quarter. 3 new brands were launched this quarter, affecting the total number of brands launched to 13 this year.

Speaker 4

Our PCI business recorded revenues of $99,000,000 in Q4 of April 'twenty four, with a year over year growth of 4% and sequential growth of 5%. On a full year basis, the revenues were $359,000,000 with a marginal decline of 1% over the previous year. We filed 48 Bragman's rental this quarter, taking the annual total to 133. We continue to focus on research and development to get robust product pipeline. That will drive future growth.

Speaker 4

Our R and D investment this quarter stood at INR688 crores, up 28% year over year, driven by our biosimilar products pipeline as well as the development efforts across generics and our novel oncology asset in origin. Further, we will complement our in house efforts with partnerships and collaboration to develop innovative solutions. We have done 21 global generic filings, including 9 ANDAs, 1 NDA in the U. S. In during Q4, April 'twenty four.

Speaker 4

Local number of global filings for the expanded 43 with 7 BA MDAs and 2 NDAs in the U. S. Our capital allocation priorities remain unchanged, with our number one priority being to reinvest in our business, both in the pipeline as well as building businesses of the future. Our strong balance sheet provided financial flexibility and we remain committed to pursuing value enhancing these development transactions to augment our organic growth efforts. As we exit the fiscal year on a positive note with a robust financial performance and strategic move has a step closer toward our immediate to run rate term goals.

Speaker 4

I look forward to sustained growth momentum in the base business and seamless integration of acquired assets in the next fiscal year. With this, I would like to open the floor to questions and answers.

Operator

Thank you very much. We will now begin the question and answer session. The first question is from the line of Neha Manpuria from Bank of America. Please go ahead.

Speaker 5

Yes, thanks for taking my question. My first question is on the Nestle JV that we announced last month. If you could give us some color on when we should start looking at probably rollout of these brands and how should we think about ramp up of the entire JV revenue flowing through? Will it take a couple of years before it starts contributing to margins or would there be some incremental investments required? And just to follow on on that, will this be will the JV contribution be over and above the double digit growth in India that we have talked about in the past?

Speaker 5

Is that the way we should think about it?

Speaker 4

So yes, it's going to be above that. At the same time, it will take time to bring the brands that are currently outside of India to register them, to adjust them to the regulatory needs or the taste of the people and obviously to build the brands in India. So the way to the way the JV will work is both parties are doing the current and the sort of highs to the JV. And then as a separate sequence to bring the brands primarily of Net Health Science to India, register qualifying them, building them likely that in the 1st 3 years, it will be some level of investment. It's not going to be material investment in terms of total effort, but the revenues will come only in the years after that.

Speaker 5

Essentially, I should assume that this starts contributing to the India business probably post FY 'twenty six?

Speaker 4

It will be post FY 'twenty six, likely given post FY 'twenty seven. So the first couple of years will be years in which we will bring those products and build the brands in the certain sequence. So normally, people will see the growth, but this has a potential to be a meaningful business, but it will take time to build it.

Speaker 5

And the second question is on the R and D spend. We have a pretty high R and D spend this quarter. You talked about it in your opening remarks. When can we start seeing the complex product pipeline that you're talking about or the biosimilars contribute to earnings, particularly in the U. S.

Speaker 5

Market? Should we start seeing and some of the areas if you could talk about and the guidance for next year for R and D please?

Speaker 4

Yes. So in terms of contribution to the growth, the small molecules we will see that already in FY 25, some of them, more of them in FY 'twenty six and some of them in FY 'twenty seven, 'twenty eight. So this is the pipeline that we have discussed in the past. In terms of the biosimilars, what will come from internal activities likely that in April 27, we will start to see the products coming. The level of R and D for next year will be around 8.5% to 9%.

Speaker 4

This is the range that's likely we are going to have.

Speaker 3

Thank you so much.

Operator

Of Kunal Damesh from Macquarie Capital.

Speaker 3

The first one on the U. S. Business, just a clarity. You said that there was a base erosion on a quarter on quarter business quarter on quarter basis. So would the base include generic revenue contribution as well when you say base erosion?

Speaker 3

[SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Yes.

Speaker 4

You're speaking about now. So, Nelsa, Gunalan? I did not catch the question. This is

Speaker 3

about America? Yes, yes. North America, we have said that the quarter on quarter decline is due to erosion in base business. So my question is, would this base business terminology include revenue from generic revenue?

Speaker 4

Yes. So the quarter obviously include the sales of linodulinide. The decline is a combination of sequence of service. So it's not a market share loss, it's more of a sequence of supply as well as certain price erosion that was in the base business unrelated to doing that.

Speaker 3

Sure. And in terms of the U. S. Price erosion, while it continued, have you seen any change in the recent trend where it is again accelerating at a higher pace

Speaker 4

in recent months? So the overall sentiment is unchanged. Still the lion's share of the I think of the interest is sustainability of service and supply. This is still the case. At the same time, we did face competition in some of our big products and those products we did see price erosion in which to some extent was compensated by most of other products.

Speaker 4

So on those specific products, we did see price over.

Speaker 3

Sure. And for the next year, how many product launches you have planned for the U. S. Market?

Speaker 4

So about 20 plus. 20 plus. Okay. Thank you and all the best.

Operator

The next question is from the line of Sion Mukherjee from Nomura. Please go ahead.

Speaker 2

Yes. Thanks for taking the question. Just one question on R and D. We have seen a significant step up and as you mentioned, your guidance has looked like you're talking about more than $300,000,000 of R and D spend next year. If you can provide like where does money is being spent in terms of biosimilars or NCE research and other generic activity?

Speaker 4

So the R and D is a spend obviously on the small molecules as well as the big molecules. I think the main contribution to the growth is the timing of the clinical trial of the dark similar, which is about 20% of the R and D spend. So if you wish between the small molecules and the big molecules, so you have about 60% that goes to the small molecules, about 20% that is going to the biosimilars and the 20% that goes to either API or other initiatives like licensing in and activities.

Speaker 2

Okay. Thanks. And my second question would be, how do you see the growth in emerging markets in the years ahead, particularly with respect to China and some of the key markets like Brazil, if you can talk about your outlook for 15, 25 and 26?

Speaker 4

So it will continue to grow. It will continue to grow in double digit. China looks good. We are now consistently submitting 13 different products a year. So this likely to continue.

Speaker 4

And also we got some interesting approvals. So overall in constant currency, I believe that we are in a good shape. Obviously, there is a risk of ForEx, which is remain the same. We have certain level of protection, but obviously if it will come, it may offset it, but overall it looks good.

Speaker 2

Okay. Thank you.

Operator

Thank you. The next question is from the line of Balaji Prasad from Barclays. Please go ahead.

Speaker 6

Hi, everyone. This is Mikaela on for Balaji. Thanks for taking our questions. Can you hear me?

Speaker 4

Yes, yes please.

Speaker 6

Okay, great. So we see you launched 4 new products in the U. S. During the quarter. Could you just provide a little bit more detail on these launches?

Speaker 6

And my second question is if you could provide a bit more detail on the CRL issue to the BLA for biosimilar and rituximab. What are the next steps here and what did this entail? Thank you so much.

Speaker 4

Yes. So from the launches this quarter, as I mentioned, we launched 5 products during the quarter. We cannot mention the names along the way. We will try to provide it to you in a second. As for the CRL, we got certain questions primarily about the CMC of the product And we are planning to address that around the September timeframe.

Speaker 4

And then obviously, I'm assuming it's a 6 month going after that.

Speaker 7

Yes.

Operator

Thank you. The next question is from the line of Tarang from Old Bridge. Please go ahead.

Speaker 7

Hi, congrats for extremely strong set of numbers for FY 'twenty four. Just a couple of questions. Capital expenditures kept up quite a lot in both FY 'twenty three, FY 'twenty four. If I look at 'twenty four alone, roughly INR 2,500 crores of CapEx. So if you could just give us a sense in terms of a broad set of baskets where this 2,700 crores would have been deployed.

Speaker 7

So that's number 1. 2nd, till date, if between P and L and balance sheet, if you could give us a sense on what your cumulative investments in biosimilars has been? And 3rd, just a general sense on where your overall biosimilar business is at?

Speaker 4

Yes. So about CapEx, first of all, most of our CapEx is going to the expansion. Let's say, give or take around 75% of it is going to expansion. And normally, the other is going what we call maintenance. The maintenance is also whether you need to replace certain stuff or related to compliance or investment in the digital, etcetera.

Speaker 4

Also in the future, in terms of distribution of the CapEx also for next year, we are investing primarily the CapEx in products that we want to launch and with that capacity both in the API as well as in our injectable facilities. So more than 50% of the CapEx is going that direction. In addition to that, we are building additional capacity in our biologics plant in Batuoli as well as in our APSL, our services on both biologics and small molecules. So by and large, this is where the CapEx is going. Is it sufficient?

Speaker 4

I don't remember the rest of the question.

Speaker 7

Yes. This is all right. So when you say expansion, these are broad buckets. I mean, it's going into API, injectables, biologics and allogene, right? Correct.

Speaker 7

Okay. If you could give us an update on your biosimilar business from year on and what are your cumulative spend spend on this business till March 24?

Speaker 4

So the in terms of personnel, we just to remind us all, we decided to focus on products that we have a chance to be first to market. And when we initiated that strategy, we kind of bypass the products that we that has a chance that we had the chance to be late to market. So first, meaningful products will come in 2027 and after that more products will follow. Right now, we are not discussing specific names, but that's the overall plan. What you can assume and I mentioned it before that this 20% is going to the R and D, This is give or take also at the level of loss that we have in the year because right now we don't have any full sales to cover for it.

Speaker 4

And this is something that likely to be breakeven and beyond be profitable once we will launch in April 27 our first biosimilar in Europe and United States.

Speaker 7

So therefore, would it be safe to presume an investment of anywhere between $50,000,000 to $60,000,000 per annum on biosimilars? Would that be a reasonable estimate from year on? Yes, reasonable. Okay.

Operator

Thank you. Thank you. The next question is from the line of Tushar Manudane from Motilal Oswal Financial Services. Please go ahead.

Speaker 8

Thanks for the opportunity. Sir, just on rituximab, as far as Europe is concerned, it could be

Operator

shared? Tushar, the line for you seems to be a bad connection. Can't hear you.

Speaker 4

Can you repeat the question, sir?

Operator

You are not audible, Tushar. Is it better? No, you seem to have a bad connection. I request you to please reestablish your connection and then get back in the queue. Thank you.

Operator

The next question is from the line of Nimish Mehta from Research Delta Advisors. Please go ahead. Nimesh, the line for you has been unmuted. You may proceed with your question.

Speaker 4

Maybe you can move to the next one, yes.

Operator

We will move to the next question, which is from the line of Nikesh Dutt from Burman Capital.

Speaker 9

I have a question on our manufacturing strategy for the India business. So I just want to understand, number 1, what percentage of your manufacturing in India is being done in house versus outsource? And are you expecting to maintain a similar mix going forward? And second, for the outsourcing part, how many suppliers do we typically have? Is it like a segmented supplier base or consolidated amongst a few companies?

Speaker 4

Yes. So when you said supply, you meant global or for India?

Speaker 9

For India. For India or mostly.

Speaker 4

So right now, about 60% of what we do in house, give or take. And likely that these numbers will increase in the future because we did we do have localizations of some of these products in the future. As said for the numbers of partners, I don't recall the exact number, but I'm assuming that it's double digit likely, but I don't have the exact number on top of my head.

Speaker 9

All right. And then a follow-up on that. The government has been placing a lot of emphasis on stricter implementation of Schedule M norms and quality standards, right? So how can it impact our procurement strategy on the outsourcing front? So can it lead to some sort of consolidation of supplier base or maybe an increase in the procurement cost, etcetera?

Speaker 9

Because if the quality cost increase for our suppliers, then cost our COGS might increase as well?

Speaker 4

So I can tell you that for those reasons, we have one standard of quality. We believe that all people deserve the same quality no matter what is their nationality. And that's the policy of Doctor. Reddy is that we encourage everybody to do the same. So for us, any guidance in that direction, we see that as an opportunity.

Speaker 4

And if there are people that need to target their system, it's good for India.

Speaker 9

All right. Thanks. I'll cut back in.

Operator

Thank you. The next question is from the line of Services. Please go ahead.

Speaker 5

Are you all right?

Operator

Yes, please go ahead, sir. Sir. Sorry to interrupt, but the line is bad again for you. Can't hear. Can you please note an area with better network?

Speaker 8

Is this better?

Operator

Yes.

Speaker 8

Okay. Sir, on rituximab, trying to understand whether or whether or whether

Speaker 2

you're selling your own, any concern?

Speaker 4

So rituximab we launched in the Yes. So with Tuxedo, we are planning to launch in the UK. As we speak, we did not do it yet. So we believe that we should get the approval soon. We are after the qualifications in the U.

Speaker 4

K. And we are waiting for the inspection of the EMA as well.

Speaker 8

Understood. So secondly, on the inventory, I see quarter on quarter reasonable increase. If you could explain that?

Speaker 4

Again, sorry? Again, can you repeat?

Speaker 8

There has been reasonable increase in the inventory on a quarter on quarter basis.

Speaker 4

You're talking about inventory?

Speaker 8

Inventory, sir, inventory.

Speaker 3

Yes, let me ask let me say that question. The increase in inventory is primarily because of some of the geopolitical risks which are there, which are having some impact on the rooms of supply. So we proactively build inventory to make sure that there is no loss of sales. That's the primary reason for the increase.

Speaker 8

Understood. And lastly, sir, with SG and A expense also we've seen increase over past 3 to 4 quarters. So is this the run rate to consider for FY 'twenty five or will there be further increase in this? Overall, if

Speaker 3

you look at the SG and A expenses this year for the full year, as a percentage to sales, it's about 27.7%, which is same as last year. Now quarter on quarter, you will find situations happening. Broadly, we are investing behind our brands in sales and marketing, behind our capabilities, while also driving productivity. Broadly, I would say that SG and A over the next 12 months or so, the percentage of sales would remain in the same similar range.

Speaker 8

Got it. Thanks. Thanks for that.

Operator

Thank you. The next question is from the line of Ankush Marjan from Axis Securities. Please go ahead.

Speaker 5

Thanks for the opportunity. So if you see that we have a U. S. Sales of $390,000,000 on sequential basis, it has decreased. Just try to understand, so this decrease in the base business or in the GWM business?

Speaker 4

The decline is a combination of the sequential decline is part of it is normal pattern of ordering of the products. And part of it is some price erosion that we brought on few products, It's a combination of both.

Speaker 5

So what is the guidance of margins, full year guidance of EBITDA margins for FY 2020?

Speaker 4

So as you know, we are not giving guidance. In general, we are repeating that the normal long term place that we want to be. So the 25% EBITDA, the 25% ROCE, the EBITDA growth. It's something that we are consistently saying that this is the range that we want to be. Sometimes we'll be above it, sometimes we'll be below that.

Speaker 4

But we feel very comfortable that this is a place in which we can go to invest for the future and it allows us significant room for improvement and for investing in the future as well as bring very, very healthy return to the shareholders. This year, we are by and large higher than that. And but there will be timing that it will be it can be even lower than that, but this is the where we feel comfortable to be. So we are not giving a kind of overall guidance, but we are not giving guidance for specific quarters or specifically. So when we say 25 percent EBITDA margins, that includes G W Medalsoft?

Speaker 4

Like I mentioned before, this is our overall guidance, not for specific products. As you can see, when we launched the product, our margins were higher, so we came through the math.

Speaker 5

Thank you, sir. Thanks very much.

Operator

The next question is from the line of Surya Patra from Philip Capital. Please go ahead.

Speaker 2

Yes. Thanks for the opportunity. My first question is on the pricing trend that you'll be seeing for the government. So and how sustainable the pricing trend currently that we are having for that because there are multiple rounds of new share entry that we have seen. So whether that has impacted the realization potential of the production

Speaker 3

in the recent period?

Speaker 4

So I'm not going to discuss quantities or prices of this product, as you know. So sorry?

Speaker 2

Yes. On the pricing, I'm not just asking about

Speaker 4

I said I just said, I'm not going to discuss pricing or quantities of this product. We need to remain confidential to our agreements. And what we can say that is going to stay meaningful product for us throughout the period of the agreement.

Speaker 2

Then my first question then would be on the domestic formulation business. So obviously, as per your indication that you have taken multiple initiatives to either introduce branded products or to expand qualitative products and the long term sustaining kind of a sustainable growth guiding kind of a product for the domestic formulation business, but in the initial period possibly may not benefit much. So if you can look something, let's say, over a period of 3 years from now, what is the fare of revenue mix that you should be seeing for your domestic automation business?

Speaker 4

So you can see that we have a flow of agreements that are coming. So what we say that the base business, maybe a stable. The branded business that we have in India will grow. This quarter, it grew double digit if you take out the divestitures that we had in the same quarter last year and likely that this will continue. On top of it, we started to launch already products, for example, we launched in radio and we launched other products that will come and this will be on top of it.

Speaker 4

So naturally, the expectation of India is to grow beyond the growth that is expected from the branded generics. Right now, it looks like a very healthy pipeline that is coming up on both the NCEs, the pharmaceutical deals that I mentioned, etcetera. The expectation of both businesses, if you ask about the long term is to be top flight in India. If you want an assumption, it's in the neighborhood of around 12,000 crores somewhere in April 30. But this is obviously a neighborhood that we are starting to do.

Speaker 4

We believe that this is what top 5 give or take will be at that period of time.

Speaker 2

Okay. I think it's fair to believe that domestic formulation business is going to be the growth leader for the trading over next few years. Is that fair

Speaker 4

to believe? Yes, absolutely. India is a very important market for us. And we want to grow and we want to grow the rank. And it's a growth engine, but it's also our main hub for innovation on both the back end as well as the front end.

Speaker 4

And the main place in which we believe that we can bring value because most of the people that are collaborating with us have an interest in our brand in India as well as in our go to market capabilities.

Speaker 2

My second question is about biosimilars business in the UK and also in collaboration with R and D spend that you are likely to have. So whether you have talked about 9% kind of R and D spend guidance for the subsequent period?

Speaker 4

I mentioned that 20% of R and D is going through biosimilars.

Speaker 2

Okay. And are you looking in line with the quarterly trend, R and D spend as a percentage of sales? This is a kind of sustainable run rate, not only?

Speaker 4

We believe that is sustainable for us to be in what I said 8% to 0.5% to 9%. And it could be some fluctuation depends on the timing of the Phase 3 of the products. But this is we believe that it's sustainable.

Speaker 2

Okay. And so extended question to that on this sir. So we know that having seen the kind of challenges that is there about biosimilar success in the U. S. Business and the kind of upfront investment that we required for each molecule to develop a biosimilar.

Speaker 5

So what is the kind of

Speaker 2

a right to success that you do think for your biosimilar study?

Speaker 4

So I mentioned the timelines before. We decided at the time to skip the products that will be late to market in order to be among the first one to launch the products and we still hope to do that. The second one is that we are not developing only for the U. S. Obviously, the U.

Speaker 4

S. Is very important market for us, but we are developing globally. And it's actually for us, it's about U. S, Europe, India and emerging markets and each one of them on the molecule that they chose these are meaningful markets for us.

Speaker 2

Okay. Yes, sure.

Operator

The next question is from the line of Madhav Marda from FIL. Please go ahead.

Speaker 5

Given that India is a core sort of focus market for us over the longer term, just wanted to get your thoughts on any

Speaker 2

risk that

Speaker 5

you see from rise of organized pharmacy retailing in the country like it happens in most developed markets that we've seen over the past few years And there is a generic drug in the country, which the government has also tried to push last year, obviously, it didn't shape up. So just your thoughts on some of these factors and how they could play out for the country to enhance? Thank you.

Speaker 2

So there have been several attempts to make this generally blended business effective. But given the enforcement gaps in quality and concerns about doctors about quality, we feel that the branded generics business will continue for a while. We don't see any imminent danger of that being commoditized by generic genomics.

Speaker 5

Given that all the organized pharmacies, Kamil, don't this solve for the quality angle?

Speaker 2

Well, organized pharmacies are still the small portion of the overall sales. If you look at this market share, it's probably 12% to 15%

Speaker 4

So just to make sure, we do see obviously the 13 portion of the like by the way, it happened everywhere in the world will become generic. At the same time, the market is growing as well. We recognize that trends very long back and I discussed it in previous meetings. This is why our main efforts and our main debt is about actually 2 innovation, patent protected, etcetera. We believe that the brands, our brands decided to continue to focus on will stay for a while like Prashal

Operator

The next question is from the line of Vinod Pratik Parampal from Elara Capital. Please go ahead.

Speaker 3

Hi, good evening. So, question on a couple of products in the U. S. One, you had acquired this NDA to generate Dynifile from Slayback Pharma. What's the status when we expect an approval?

Speaker 4

Sorry, can you repeat the product?

Speaker 3

Generic version of OMBF or generic version of Unify, which we acquired from Slayback and Mama.

Speaker 4

Yes. So what is the question?

Speaker 3

What is this 2 test? I believe it was already filed when you acquired it. When do you expect approval and launch?

Speaker 4

So the best of my knowledge is approved for that right now.

Speaker 3

Sorry, what is it?

Speaker 4

It's an approved product by now. You asked whether it will get approved, but it's approved. Okay.

Speaker 3

And then the timelines for the launch?

Speaker 1

We expect the launch to happen in this quarter only.

Speaker 4

This quarter, okay.

Speaker 3

2nd, I believe you are also working on the peptides. So any update on what how do you see the lira gluatide opportunity coming out over the next 2, 3 years?

Speaker 4

So, yes, indeed, this is very important segment for us. Long term, we put a lot of effort. We are still putting efforts on both the API as well as the finished goods globally. We are then into the initial on the market. Specifically for the product, both Victoza and Saxenda, obviously, we have what we believe are the date of launch for each one of them and want to launch when we can.

Speaker 3

Is it like couple of years or 4 years? What's the rough idea of where you see the opportunities coming up?

Speaker 4

Each one of these products, there is a date. I don't I cannot confirm a date.

Speaker 1

We said it at an appropriate time.

Speaker 4

At this stage, we cannot. But whenever the market will be open, we are planning to do that.

Operator

Thank you. Ladies and gentlemen, that will be the last question for today. I would now like to hand the conference over to Ms. Perrywell for closing comments. Over to you, ma'am.

Speaker 1

Thank you all for joining us for today's evening call. In case of any further queries, please get in touch with the Investor Relations team. Thank you once again on behalf of Doctor. Reddy's Laboratories, we've been admitted. That concludes this conference.

Speaker 1

You may now disconnect your lines.

Operator

Thank you. On behalf of Doctor. Reddy's Laboratories Limited, that concludes this conference, ladies and gentlemen. We thank you all for joining us. You may now disconnect.

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Key Takeaways

  • Doctor Reddy’s delivered record FY 2024 results with revenues of US$3.35 billion (up 14% y/y), EBITDA growth of 14% and PAT growth of 24%, driven largely by its U.S. generics business while maintaining EBITDA margins near 30%.
  • The company ramped up its R&D investment to 8.2% of sales in FY 2024 (9.7% in Q4), focusing on complex small-molecule filings and a biosimilars pipeline that targets first launches in mid-FY 2027 and further rollouts through FY 2028.
  • Key strategic partnerships include a consumer-health JV with Nestlé Health Science (rollout from FY 2027), exclusive vaccine marketing rights with Sanofi in India, and collaborations with Bayer and others to bring novel therapies such as heart-failure and shock-management drugs to market.
  • The U.S. generics franchise grew 26% y/y to US$392 million in Q4 and launched 5 products (21 in FY 2024), even as sequential ordering patterns and price erosion moderated quarterly revenues; 20+ new product launches are expected in FY 2025.
  • Doctor Reddy’s continued its ESG leadership, earning a top-10% score in the S&P Global Sustainability Yearbook 2024 for the fourth consecutive year and securing A-ratings from CDP on climate change and water security.
A.I. generated. May contain errors.
Earnings Conference Call
Dr. Reddy's Laboratories Q4 23/24
00:00 / 00:00