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Dr Reddys Laboratories

BSE: 500124|NSE: DRREDDY|ISIN: INE089A01023|SECTOR: Pharmaceuticals
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« Mar 15
Chairman's Speech (Dr Reddys Laboratories) Year : Mar '16
Dear Shareholder,
 
 Even as the world experiences economic turbulence and slowdown,
 contributing to a general lack of cheer as far as economic growth goes,
 India continues to deliver a standout performance and grow at a rapid
 pace. At the same time, however, ensuring access to quality healthcare
 remains a primary challenge for governments and communities.
 
 At Dr. Reddy''s we continue to advance on our purpose of accelerating
 access to affordable and innovative medicines and delivering on our
 brand promises.  Despite the challenges in our operating environment,
 we have managed to stay resilient and report a credible performance. We
 had our fair share of challenges, which we are working hard to surmount
 and overcome.
 
 Let me give you a synopsis of your Company''s performance in FY2016.
 
 - Consolidated revenues grew by 4% over the previous year to Rs. 154.7
 billion.
 
 - Gross profit margin was at 59.6%, 2 percentage points higher.
 
 - EBITDA was more or less unchanged at Rs. 36.3 billion, and accounted
 for 23.4% of consolidated revenues.  After adjusting for the impact of
 devaluation and translation of net monetary assets in Venezuela, EBITDA
 was 26.7% of revenues at Rs. 41.2 billion.
 
 - PBT was 4% less at Rs. 27.1 billion, 17.5% of revenues.
 
 - PAT was 10% less at Rs. 20 billion, 12.9% of revenues.
 
 We need to share with you the reasons for your Company''s somewhat
 subdued performance in FY2016, which was broadly the result of three
 key events:
 
 First: The USFDA inspected three of our plants between November 2014
 and March 2015. In November 2015, they sent a warning letter to your
 Company.  We have responded to them with a comprehensive plan of
 corrective and remedial actions with clear timelines.  However, this
 event and the remedial steps that followed have delayed launches of key
 products and certain APIs which, in turn, significantly lowered
 incremental revenues.
 
 Second: The economic problems in Russia and the sharp devaluation of
 the rouble led to a decline in our revenues from Russia by 29% to Rs.
 10.6 billion.
 
 Third: The continuing economic crisis in Venezuela led to a clampdown
 on foreign exchange outflows due to which your Company received no
 approvals from the Venezuelan government to repatriate amounts beyond
 US$ 4 million.  The remaining Venezuelan net monetary assets were
 translated using the DICOM rate resulting in a write-down of Rs. 5.09
 billion.
 
 These three factors notwithstanding, there were several commendable
 developments which reinforce your Company''s position as a key
 participant in the global pharmaceutical industry.
 
 Revenues from North America grew by 19% to Rs. 75.4 billion. The
 sustained performance of our injectables franchise and market share
 gains in key molecules were the main reason.
 
 Revenues from India also grew at 19%, reaching Rs. 21.3 billion. This
 was primarily due to the continued momentum of our mega-brands, some
 profitable business development deals and the good performance of
 pharmaceutical products acquired from UCB in April 2015.
 
 Europe did well too. Revenues from generics expanded by 19% to Rs. 7.7
 billion. Growth was driven largely by two complex generic products:
 
 (i) aripiprazole, used in treating schizophrenia and bipolar disorder,
 and (ii) pregabalin, used to treat epilepsy, neuropathic pain and
 anxiety disorder.
 
 We are particularly proud of the advances made in our Proprietary
 Products (PP) business. We launched ZembraceTM SymTouchTM, used in
 treating migraines, approved by the USFDA in January 2016. In May 2016,
 we launched SernivoTM, a prescription topical steroid spray, used for
 mild to moderate plaque psoriasis, after receiving USFDA approval.
 SernivoTM exemplifies your Company''s focus on differentiated drug
 delivery.
 
 We have also initiated a share buyback to leverage strong cashfl ows,
 strengthen our balance sheet and deliver value to you, our
 shareholders.
 
 What do I foresee for the next year?  It is difficult to assess the
 probable situation in Venezuela and Russia in the near future. In case
 of Venezuela, your Company has decided to supply medicines only against
 letters of credit or pre-payment. We are cautiously optimistic about
 Russia, given that there is a gradual recovery in the crude prices, and
 its direct impact on the trouble. We have started strengthening our
 pipeline with complex generics, better OTC offerings, and increasing
 our institutional/ hospitals business.
 
 We have undertaken remedial measures with an extreme sense of urgency
 and purpose. Therefore, I am reasonably confident that we will resolve
 the issues at the earliest and continue to focus on driving growth.
 
 Our growth, going forward, will be driven by the attractive pipeline of
 complex generics as well as our new proprietary products. We will
 leverage these across the markets we operate in, together with
 increasing our OTC portfolio. We are creating a branded generics
 platform in North America and expanding our
 
 We accelerate access to affordable and innovative medicines because
 Good Health Can''t Wait.
 
 biologics play in Russia, CIS and other emerging markets. The outlook
 for the API business is also positive.
 
 We truly believe that delivering good health requires more than just
 good products. In order to deliver good health, we must build a
 business which is robust, around processes that are best-in-class, and
 with a mindset that is long-term, while investing in high-quality
 assets and the best people. Over the years, we have consistently
 demonstrated our ability to do so and continuously improve from within.
 We are building an organisation on the foundation of operational
 excellence (OE), with a strong product pipeline and a sustainable
 business model that is value-accretive for all the stakeholders.
 
 Operational excellence (OE) acts as a bulwark against adversities and
 margin challenges thereby empowering our people to become engines of
 our growth.
 
 For us to fulfill our stated purpose of accelerating access to
 affordable and innovative medicines, we have to continue tirelessly on
 the journey towards excellence in every facet.
 
 The Board and I are truly grateful for the support that we continue to
 receive from all our stakeholders. Let''s chart the good health path
 together starting from within.
 
 Best wishes,
 
 K Satish Reddy
 
 Chairman
Source : Dion Global Solutions Limited
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