Key highlights from Dr. Reddy’s Laboratories (DRREDDY) Q4 FY23 Earnings Concall
Q&A Highlights:
- [00:21:55] Mikhaila at Barclays asked more details about the deal with Junshi, including the responsibilities of both parties and what convinced DRREDDY about their asset and its potential. Erez Israeli CEO said the company seeks unmet needs in India and collaborates with China’s innovation industry to provide valuable products, prioritizing affordable health solutions.
- [00:23:23] Surya Patra of PhillipCapital enquired about the sequential growth in the U.S. excluding REVLIMID in the current quarter. Erez Israeli CEO said the company can’t provide guidance, but expects growth in all areas, including the U.S., driven by launching new products and contributions from recent acquisitions.
- [00:24:34] Surya Patra of PhillipCapital asked about the launch momentum in the US market. Erez Israeli CEO said that investment in R&D on products with less competition is paying off. DRREDDY will see a pattern fleet in FY24 and after. The company plans to launch 25-30 meaningful products with less competition and continue to accumulate them.
- [00:30:01] Damayanti Kerai from HSBC asked about the price erosion in the existing products in the U.S. business and compare the price erosion in oral solids to injectables. Erez Israeli CEO replied that the U.S. market structure and player behavior remain unchanged, and the company’s product mix reduced price erosion. However, competition may still lead to erosion in both injectables and oral solids markets. Less competition could result in a more favorable situation.
- [00:31:39] Damayanti Kerai from HSBC asked that as DRREDDYs invest in new business and long-term growth drivers, how it’s seeing R&D and SG&A costs and margin trajectory moving on a sustained basis. Erez Israeli CEO replied that the company aims to maintain a long-term goal of 25-25 and will allocate additional resources to technical issues. R&D spending will likely be 8-9%, with a focus on biologics, partnering, genetic R&D, and less competitive products.
- [00:33:22] Neha Manpuria from Bank of America enquired that will the ROW market return to its historical growth rate of 20-25%, excluding Russia. Erez Israeli CEO clarified that the company is aiming for its traditional growth.
- [00:33:45] Neha Manpuria from Bank of America asked how does the divestment income in the current quarter affect the growth of the India business and are there more divestments planned and can the company grow in line with the market in India. Erez Israeli CEO said the divestment in India was INR264 crores and the company is focusing on bringing more products and enhancing collaboration discussions and BD deals for organic and inorganic growth, with most inorganic growth coming from collaboration and M&A acquisitions of other companies.
- [00:37:47] Ankush Mahajan from Axis Securities enquired about the sustainability run-rate for gRevlimid in the upcoming quarters and how does it affect the EBITDA margins for the U.S. business, excluding gRevlimid. Erez Israeli CEO answered that the product will continue to be meaningful for the company and may fluctuate from QtoQ but will be there for the entire agreement timeline. The company is focusing on products with less competition and the profitability and growth of the U.S. market will continue to be in the same range in the future.
- [00:39:33] Ankush Mahajan from Axis Securities asked about the sustainable EBITDA margins. Erez Israeli CEO replied that the company is going to sustain the 25-25 on a long term basis.
- [00:43:45] Kunal Dhamesha from Macquarie asked how does the company’s accumulation of free cash flow and M&A activity compare to its peers and how does it affect the ability to acquire good assets with a good IRR. Erez Israeli CEO said the company paid off debts and accumulated cash to prepare for potential interest rate and inflation increases. DRREDDY seeks digital opportunities with good valuations for licensing, portfolio expansion, and debt repayment. The company plans to make more deals in the future.
- [00:46:58] Cyndrella Carvalho from JM Financial asked about the Chinese product approvals starting to reflecting in earnings and the outlook for these products. Erez Israeli CEO replied that the company’s efforts in submitting for GA status and early market entry for China-focused products have resulted in quick approvals and significant impact on results. The impact will start in FY24 and become more meaningful in ’25 and ’26. The company’s strategy is working well and it has an outlet for the important Chinese market.
- [00:48:44] Cyndrella Carvalho from JM Financial asked how does the company’s PSAI business compare to its peers in terms of top-line growth and GM and its outlook. Erez Israeli CEO said the company anticipates growth and improved profitability from new product launches and expansion into Asian markets, with a better product mix and improved supply chain and procurement. Positive momentum is expected for both growth and profitability.
- [00:50:58] Tushar Manudhane from Motilal Oswal asked if the company expects growth in North America sales in FY24, despite strength-related exclusivity and competition for generic Revlimid in FY23. Erez Israeli CEO said that the company believes it will grow due to the launch of 25 to 30 products and the combination of this mix should result in growth.