Capex, dividend payout led to fall in Q2 cash levels: DRL

Dr Reddy's Laboratories has announced its second quarter numbers. It has posted consolidated net profit of Rs 267.2 crore for the quarter ended September 2007 as against Rs 279.8 crore in same quarter of last year (US GAAP).

Consolidated net sales declined to Rs 1,267 crore from Rs 2,003.9 crore (US GAAP). Forex gain was at Rs 25 crore and income tax benefit at Rs 124.8 crore.

Q2 revenue from Germany was down to Rs 190 crore from Rs 260 crore and revenue from Russia at Rs 98 crore. R&D expenses increased to Rs 81 crore from Rs 40.2 crore and bulk drug revenue was up 11.5% to Rs 320 crore. Consolidated net profit included Betapharm tax reversal of Rs 150 crore.

GV Prasad, Vice Chairman and CEO of Dr Reddy's said, Dr Reddy's was the first company to launch Ranitidine 150 mg as a private label over-the-counter or, OTC into the US. He further added, that they have a portfolio of products, which was marketed earlier through a partner, but was now being launched by the company directly.

Saumen Chakraborty, President and CFO of Dr Reddy's when queried on reduction in cash and cash equivalents and increased borrowings said, working capital requirement had gone up in line with business requirement in the quarter. He added that there were dividend payouts made by the company as well in the quarter.

Excerpts from Dr Reddy's Laboratories' press conference:

Q: Can you explain a bit on these two issues, the reduction in cash and cash equivalents from Rs 1111 crore to Rs 846 crore, and the second one is increase in borrowings from Rs 1,529 crore to Rs 1,635 crore?

Saumen Chakraborty: Definitely the working capital requirement has gone up in line with our business requirement. Also, in this quarter, we had the dividend payout, and further, we have been investing on capital expenditure. So, all these accounted to this.

Q: For the US market, you have said that the growth has been 63% and you accounted for OTC. What is the share of OTC in this entire gamut?

Satish Reddy: Right now it is a small percentage. We have just started those things.

Q: Coming back to Ranitidine 150 mg, administering of OTC products?

GV Prasad: We are the first company to launch 150 mg as a private label OTC into the US. Apart from that, we have a portfolio, which we used, to market through another partner, now we have launched those products directly.

Q: You are not in a position to quantify the exact expected revenues from Ranitidine 150. At least the band, is it USD 150-200 million?

GV Prasad: No. It is more in the range of USD 10 million.

Q: What is the status on 11605?

GV Prasad: 11605 has been discontinued due to safety reasons. But there have been no new additions to the pipeline from a clinical perspective.

Q: So, would that have any impact on Balaglitazone also? Are you considering it?

GV Prasad: Balaglitazone is moving forward into phase-III and various trials are going on. So, that is not impacted by any of these things.

Q: So, what would be the impact of 11605 discontinuation? How much have you invested on it till now and would there be any major impact?

GV Prasad: It is not a major impact from a financial perspective. It is just routine pipeline optimisation.

Q: How much money would have gone into it till now?

GV Prasad: We are not sharing that level of detail.

Q: On the deferred tax liability, was it one-time or you expect it to happen a second time?

GV Prasad: It is a one-time. It is a result of a change in the tax rate in Germany.

Saumen Chakraborty: The tax rate has come down from 39% to 29%. Since it has happened in this quarter, as per US GAAP accounting, the reversal of deferred tax liability is taken in this quarter.

Q: The deferred tax liability issue, is it a one-time advantage that you got during this quarter?

GV Prasad: It is a US GAAP treatment. It is not a cash charge; it is a one-time event, because the tax rate decreased from 39% to 29%. It caused this accounting treatment.