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
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
- 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
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
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.
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
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
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
We have also initiated a share buyback to leverage strong cashfl ows,
strengthen our balance sheet and deliver value to you, our
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
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.
K Satish Reddy