Release Date: July 27, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Dr Reddy's Laboratories Ltd (RDY, Financial) reported a 14% year-on-year revenue growth for Q1 FY25, driven by the generics business in the US and the in-licensing of Sanofi's vaccine portfolio in India.
- The company achieved a consolidated gross profit margin of 60.4%, an increase of 170 basis points year-on-year.
- EBITDA for the quarter grew by 15% quarter-on-quarter, reaching INR 2,160 crores (USD 259 million), with an EBITDA margin of 28.2%.
- The company has a net cash surplus of USD 808 million as of June 30, 2024, indicating strong financial health.
- Dr Reddy's Laboratories Ltd (RDY) continues to expand its global consumer healthcare business, highlighted by the acquisition of Nicotinell and other market-leading brands in the Nicotine Replacement Therapy category.
Negative Points
- SG&A expenses increased by 28% year-on-year and 11% quarter-on-quarter, primarily due to investments in new business initiatives and higher freight rates.
- The R&D spend for the quarter increased by 24% year-on-year, which could impact short-term profitability.
- The company's gross margins were partially offset by price erosion in the generics markets.
- The USFDA issued Form 483 with observations for two of Dr Reddy's Laboratories Ltd (RDY)'s manufacturing facilities, indicating potential regulatory challenges.
- The free cash flow generated during the quarter was relatively low at INR 227 crores (USD 27 million), despite strong revenue growth.
Q & A Highlights
Q: What caused the sequential moderation in cash flow generation despite similar working capital levels?
A: The moderation in cash flow is due to fluctuations in factoring, particularly in the US market. We rolled back some factoring this quarter, but overall, operational cash flow remains in line with normal trends. (Parag Agarwal, CFO)
Q: Is there any one-off included in this quarter's SG&A expense?
A: Yes, there are some one-offs, including increased freight rates due to route issues in the Red Sea and other minor fluctuations. However, we expect SG&A to be within the range of 27% to 28% for the full fiscal year. (Parag Agarwal, CFO)
Q: Are you on track to achieve the usual guidance of launching 20+ products in the US this year?
A: Yes, we are on track to achieve that. We will provide more specific numbers later. (Erez Israeli, CEO)
Q: How should we think about the potential size of the OTC business in fiscal '27-'28?
A: The OTC and consumer care business is a focus area. With current and new acquisitions, we expect this segment to grow significantly, potentially reaching billions in the future. However, achieving a billion-dollar mark by fiscal '27-'28 would require additional acquisitions. (Erez Israeli, CEO)
Q: Can you provide a timeline for the filing and launch of denosumab and abatacept biosimilars?
A: Denosumab is expected to be filed next year, with a launch in 2026. Abatacept should be filed by the end of calendar 2025, with a launch by the end of 2026 or early 2027, assuming timely approvals. (Erez Israeli, CEO)
Q: What contributed to the significant quarter-on-quarter growth in the US business?
A: Most of the growth came from the base business, with a healthy contribution from three new product launches. We expect the US business to continue growing. (Erez Israeli, CEO)
Q: How should we look at India growth in the near and medium term, especially with the Sanofi vaccine portfolio?
A: The baseline growth for India, excluding acquisitions, will be double digits this year. The Sanofi vaccine portfolio will add to this growth. (Erez Israeli, CEO)
Q: What is the current status and future plans for the biologics facility?
A: The biologics facility is primarily for CDMO activities. We have invested around INR300 crores in CapEx. The facility is currently focused on R&D activities, with plans for future scale-up. (Erez Israeli, CEO)
Q: How are you planning to utilize the significant cash and cash flow generation in the next two to three years?
A: We plan to invest in B2B generics, innovation, consumer care, and biologics. Our preference is for collaborations, licensing, and acquiring complementary assets. We are also investing in CapEx for biologics and injectables. (Erez Israeli, CEO)
Q: Has there been any business impact from the recent Microsoft outage?
A: No, there has been zero impact on our business from the Microsoft outage. (Erez Israeli, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
