SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 6-K

 

REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13A-16 OR 15D-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarter Ended December 31, 2020

 

Commission File Number 1-15182

 

DR. REDDY’S LABORATORIES LIMITED

(Translation of registrant’s name into English)

 

8-2-337, Road No. 3, Banjara Hills

Hyderabad, Telangana 500 034, India

+91-40-49002900

 

(Address of principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

 

Form 20-F x                        Form 40-F ¨

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ______

 

Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ______

 

Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.

 

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes ¨                        No x

 

If “Yes” is marked, indicate below the file number assigned to registrant in connection with Rule 12g3-2(b): 82-________.

 

 

 

 

 

QUARTERLY REPORT

Quarter Ended December 31, 2020

 

Currency of Presentation and Certain Defined Terms

 

In this Quarterly Report, references to “$” or “dollars” or “U.S.$” or “U.S. dollars” are to the legal currency of the United States, references to “Rs.” or “rupees” or “Indian rupees” or “INR” are to the legal currency of India, references to “MXN” are to the legal currency of Mexico, references to “ZAR” are to the legal currency of South Africa, references to “UAH” are to the legal currency of Ukraine, references to “GBP” are to the legal currency of United Kingdom and references to “EUR” or “euros” are to the legal currency of the European Union. Our unaudited condensed consolidated interim financial statements are presented in Indian rupees and are prepared in accordance with International Accounting Standard 34, “Interim Financial Reporting” (“IAS 34”). Convenience translation into U.S. dollars with respect to our unaudited condensed consolidated interim financial statements is also presented. References to a particular “fiscal” year are to our fiscal year ended March 31 of such year. References to “ADSs” are to our American Depositary Shares. All references to “IAS” are to the International Accounting Standards, to “IASB” are to the International Accounting Standards Board, to “IFRS” are to International Financial Reporting Standards as issued by the IASB, to “SIC” are to the Standing Interpretations Committee and to "IFRIC" are to the International Financial Reporting Interpretations Committee. References to “FVTOCI” are to fair value through other comprehensive income and to “FVTPL” are to fair value through profit and loss.

 

References to “U.S. FDA” are to the United States Food and Drug Administration, to “ANDS” are to Abbreviated New Drug Submissions, to “NDAs” are to New Drug Applications, and to “ANDAs” are to Abbreviated New Drug Applications.

 

References to “U.S.” or “United States” are to the United States of America, its territories and its possessions. References to “India” are to the Republic of India. References to “EU” are to the European Union. All references to “we”, “us”, “our”, “DRL”, “Dr. Reddy’s” or the “Company” shall mean Dr. Reddy’s Laboratories Limited and its subsidiaries. “Dr. Reddy’s” is a registered trademark of Dr. Reddy’s Laboratories Limited in India. Other trademarks or trade names used in this Quarterly Report are trademarks registered in the name of Dr. Reddy’s Laboratories Limited or are pending before the respective trademark registries, unless otherwise specified. Market share data is based on information provided by IQVIA Holdings Inc. (formerly Quintiles IMS Holding Inc.) (“IQVIA”), a provider of market research to the pharmaceutical industry, unless otherwise stated.

 

Except as otherwise stated in this report, all convenience translations from Indian rupees to U.S. dollars are at the certified foreign exchange rate of U.S.$1.00 = Rs.73.01, as published by Federal Reserve Board of Governors on December 31, 2020. No representation is made that the Indian rupee amounts have been, could have been or could be converted into U.S. dollars at such a rate or any other rate. Any discrepancies in any table between totals and sums of the amounts listed are due to rounding.

 

Our main corporate website address is https://www.drreddys.com. Information contained in our website, www.drreddys.com, is not part of this Quarterly Report and no portion of such information is incorporated herein.

 

Forward-Looking Statements

 

In addition to historical information, this quarterly report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In addition to statements which are forward-looking by reason of context, the words “may”, “will”, “should”, “expects”, “plans”, “intends”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”, or “continue” and similar expressions identify forward-looking statements. The forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those reflected in the forward-looking statements. Factors that might cause such a difference include, but are not limited to:

 

in our generics medicines business: consolidation of our customer base and commercial alliances among our customers; the increase in the number of competitors targeting generic opportunities and seeking U.S. market exclusivity for generic versions of significant products; price erosion relating to our generic products, both from competing products and increased regulation; delays in launches of new generic products; efforts of pharmaceutical companies to limit the use of generics including through legislation and regulations; the difficulty and expense of obtaining licenses to proprietary technologies; returns, allowances and chargebacks; and investigations of the calculation of wholesale prices;

 

in our specialty medicines business: competition for our specialty products; our ability to achieve expected results from investments in our product pipeline; competition from companies with greater resources and capabilities; and the effectiveness of our patents and other measures to protect our intellectual property rights;

 

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our business and operations in general, including: our ability to develop and commercialize additional pharmaceutical products; manufacturing or quality control problems, which may damage our reputation for quality production and require costly remediation; interruptions in our supply chain; disruptions of our or third party information technology systems or breaches of our data security or other cyber-attacks; the failure to recruit or retain key personnel; challenges associated with conducting business globally, including adverse effects of political or economic instability, major hostilities or terrorism; significant sales to a limited number of customers in our U.S. market; our ability to successfully bid for suitable acquisition targets or licensing opportunities, or to consummate and integrate acquisitions;

 

compliance, regulatory and litigation matters, including: costs and delays resulting from the extensive governmental regulation to which we are subject; the effects of reforms in healthcare regulation and reductions in pharmaceutical pricing, reimbursement and coverage; governmental investigations into selling and marketing practices; potential liability for patent infringement; product liability claims; increased government scrutiny of our patent settlement agreements; failure to comply with complex Medicare and Medicaid reporting and payment obligations; and environmental risks;

 

other financial and economic risks, including: our exposure to currency fluctuations and restrictions as well as credit risks; potential impairments of our intangible assets; potential significant increases in tax liabilities; and the effect on our overall effective tax rate of the termination or expiration of governmental programs or tax benefits, or of a change in our business;

 

our business and operations in general, including uncertainty regarding the magnitude, duration, and geographic reach of the COVID-19 pandemic and its impact on our business, financial condition, operations, cash flows, and liquidity and on the economy in general; manufacturing or quality control protocols; interruptions in our supply chain, including due to potential effects of the COVID-19 pandemic on our operations and business in geographic locations impacted by the pandemic and on the business operations of our customers and suppliers; our ability to successfully execute and maintain the activities and efforts related to the measures we have taken or may take in response to the COVID-19 pandemic and associated costs therewith; challenges associated with conducting business globally, including adverse effects of the COVID-19 pandemic; costs resulting from the extensive governmental regulation to which we are subject or delays in governmental processing time due to modified government operations due to the COVID-19 pandemic, including effects on product and patent approvals due to the COVID-19 pandemic; disruptions of information technology systems; and our ability to successfully compete in the marketplace; and

 

those discussed in the sections entitled “risk factors” in our most recent Annual Report on Form 20-F for the year ended March 31, 2020 and “Operating and Financial Review, Trend Information” and elsewhere in this quarterly report.

 

Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis and assumptions only as of the date hereof. In addition, readers should carefully review the other information in this quarterly report, in our most recent Annual Report on Form 20-F for the year ended March 31, 2020 and in our other periodic reports and documents filed with and/or furnished to the SEC from time to time.

 

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TABLE OF CONTENTS

 

ITEM 1. FINANCIAL STATEMENTS 5
ITEM 2. OPERATING AND FINANCIAL REVIEW, TREND INFORMATION 42
ITEM 3. LIQUIDITY AND CAPITAL RESOURCES 52
ITEM 4. OTHER MATTERS 54
ITEM 5. EXHIBITS 54
SIGNATURES 55
EXHIBIT 99.1: REVIEW REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 56

 

  4  

 

 

ITEM 1. FINANCIAL STATEMENTS

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF FINANCIAL POSITION

(in millions, except share and per share data)

 

        As of  
Particulars   Note   December 31, 2020     December 31, 2020     March 31, 2020  
       

Convenience

translation

(See Note 2(d))

             
ASSETS                            
Current assets                            
Cash and cash equivalents   4   U.S.$ 59     Rs. 4,321     Rs. 2,053  
Other investments   5     158       11,530       23,687  
Trade and other receivables   6     728       53,165       50,278  
Inventories   7     607       44,309       35,066  
Derivative financial instruments         26       1,907       1,105  
Tax assets         27       1,977       4,379  
Other current assets         220       16,059       13,802  
Total current assets before assets held for sale       U.S.$ 1,825     Rs. 133,268     Rs. 130,370  
Assets held for sale   8     2       150       -  
Total current assets       U.S.$ 1,827     Rs. 133,418     Rs. 130,370  
Non-current assets                            
Property, plant and equipment   8   U.S.$ 771     Rs. 56,263     Rs. 52,332  
Goodwill   9     63       4,634       3,994  
Other intangible assets   10     499       36,428       27,659  
Trade and other receivables   6     3       243       1,737  
Investment in equity accounted investees         44       3,201       2,763  
Other investments   5     74       5,431       328  
Deferred tax assets         162       11,838       12,214  
Other non-current assets         12       890       844  
Total non-current assets       U.S.$ 1,629     Rs. 118,928     Rs. 101,871  
Total assets       U.S.$ 3,456     Rs. 252,346     Rs. 232,241  
LIABILITIES AND EQUITY                            
Current liabilities                            
Trade and other payables       U.S.$ 316     Rs. 23,072     Rs. 16,659  
Short-term borrowings   11     180       13,110       16,441  
Long-term borrowings, current portion   11     11       825       4,266  
Provisions         52       3,815       3,800  
Tax liabilities         21       1,520       573  
Derivative financial instruments         13       917       1,602  
Bank overdraft   4     -       -       91  
Other current liabilities         419       30,613       29,382  
Total current liabilities       U.S.$ 1,012     Rs. 73,872     Rs. 72,814  
Non-current liabilities                            
Long-term borrowings   11   U.S.$ 89     Rs. 6,508     Rs. 1,304  
Deferred tax liabilities         1       99       275  
Provisions         1       58       54  
Other non-current liabilities         33       2,414       2,806  
Total non-current liabilities       U.S.$ 124     Rs. 9,079     Rs. 4,439  
Total liabilities       U.S.$ 1,136     Rs. 82,951     Rs. 77,253  
Equity                            
Share capital   12   U.S.$ 11     Rs. 831     Rs. 831  
Treasury shares   12     (14 )     (989 )     (1,006 )
Share premium         122       8,881       8,495  
Share based payment reserve         18       1,344       1,233  
Capital redemption reserve         2       173       173  
Special economic zone re-investment reserve         21       1,529       -  
Retained earnings         2,084       152,185       144,247  
Other components of equity         75       5,441       1,015  
Total equity       U.S.$ 2,320     Rs. 169,395     Rs. 154,988  
Total liabilities and equity       U.S.$ 3,456     Rs. 252,346     Rs. 232,241  

 

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.

 

  5  

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED INTERIM INCOME STATEMENTS

(in millions, except share and per share data)

 

       

For the nine months

ended December 31,

   

For the three months

ended December 31,

 
Particulars   Note   2020     2020     2019     2020     2019  
       

Convenience

translation

(See Note 2(d))

                                 
Revenues   13   U.S.$    1,951     Rs. 142,438     Rs. 130,282     Rs. 49,296     Rs. 43,838  
Cost of revenues         887       64,736       59,081       22,758       20,116  
Gross profit         1,064       77,702       71,201       26,538       23,722  
Selling, general and administrative expenses         552       40,280       37,952       14,387       12,670  
Research and development expenses         170       12,447       11,220       4,108       3,949  
Impairment of non-current assets         92       6,753       16,760       5,972       13,200  
Other income, net   14     (5 )     (395 )     (4,122 )     (128 )     (228 )
Total operating expenses         809       59,085       61,810       24,339       29,591  
Results from operating activities (A)         255       18,617       9,391       2,199       (5,869 )
Finance income         28       2,008       1,796       681       571  
Finance expense         (9 )     (673 )     (753 )     (188 )     (152 )
Finance income, net (B)   15     18       1,335       1,043       493       419  
Share of profit of equity accounted investees, net of tax (C)         4       301       456       151       176  
Profit/(loss) before tax [(A)+(B)+(C)]         277       20,253       10,890       2,843       (5,274 )
Tax expense/(benefit)   16     91       6,639       (966 )     2,645       423  
Profit/(loss) for the period       U.S 186     Rs. 13,614     Rs. 11,856     Rs. 198     Rs. (5,697 ) 
Earnings per share:                                            
Basic earnings per share of Rs.5/- each       U.S.$ 1.12     Rs. 82.08     Rs. 71.53     Rs. 1.19     Rs. (34.37
Diluted earnings per share of Rs.5/- each       U.S.$ 1.12     Rs. 81.85     Rs. 71.40     Rs. 1.19     Rs. (34.37

 

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.

 

  6  

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME

(in millions, except share and per share data)

 

   

For the nine months

ended December 31,

   

For the three months

ended December 31,

 
Particulars   2020     2020     2019     2020     2019  
   

Convenience

translation

(See Note 2(d))

                         
Profit/(loss) for the period   U.S.$ 186     Rs. 13,614     Rs. 11,856     Rs. 198     Rs. (5,697 )
Other comprehensive income/(loss)                                        
Items that will not be reclassified subsequently to the consolidated income statement:                                        
Changes in the fair value of financial instruments   U.S.$ 41     Rs. 2,985     Rs. (87)     Rs. 2,804     Rs. (200 )
Tax impact on above items     -       -       (1 )     -       -  
Total of items that will not be reclassified subsequently to the consolidated income statement   U.S.$ 41     Rs. 2,985     Rs. (88)     Rs. 2,804     Rs. (200 )
Items that will be reclassified subsequently to the consolidated income statement:                                        
Changes in the fair value of financial instruments   U.S.$ 0     Rs. 7     Rs. (7)     Rs. 44     Rs. 1  
Foreign currency translation adjustments     10       753       958       731       703  
Effective portion of changes in fair value of cash flow hedges, net     13       976       (400 )     59       (129 )
Tax impact on above items     (4 )     (295 )     136       (1 )     48  
Total of items that will be reclassified subsequently to the consolidated income statement   U.S.$ 20     Rs. 1,441     Rs. 687     Rs. 833     Rs. 623  
Other comprehensive income for the period, net of tax   U.S.$ 61     Rs. 4,426     Rs. 599     Rs. 3,637     Rs. 423  
Total comprehensive income/(loss) for the period   U.S.$ 247     Rs. 18,040     Rs. 12,455     Rs. 3,835     Rs. (5,274 )

 

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.

 

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DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY

(in millions, except share and per share data)

 

    Share
capital
    Share
premium
    Treasury
shares
    Share-
based
payment
reserve
    Fair value
reserve(1) 
    Foreign
currency
translation
 reserve
    Hedging
reserve
    Capital
redemption
reserve
   

Special
economic zone

re-investment
reserve(2)

    Actuarial
gains
/(losses)
    Retained
earnings
    Total  
Balance as of April 1, 2020 (A)   Rs. 831     Rs. 8,495     Rs. (1,006 )   Rs. 1,233     Rs. (2,405 )   Rs. 4,343     Rs. (563 )   Rs. 173     Rs. -     Rs. (360 )   Rs. 144,247     Rs. 154,988  
Profit for the period     -       -       -       -       -       -       -       -       -       -       13,614       13,614  
Net change in fair value of equity and debt instruments     -       -       -       -       2,992       -       -       -       -       -       -       2,992  
Foreign currency translation adjustments     -       -       -       -       -       753       -       -       -       -       -       753  
Effective portion of changes in fair value of cash flow hedges, net of tax expense of Rs.295     -       -       -       -       -       -       681       -       -       -       -       681  
Total comprehensive income (B)   Rs. -     Rs. -     Rs. -     Rs. -     Rs. 2,992     Rs. 753     Rs. 681     Rs. -     Rs. -     Rs. -     Rs. 13,614     Rs. 18,040  
Issue of equity shares on exercise of options     - *     386       207       (344 )     -       -       -       -       -       -       -       249  
Share-based payment expense     -       -       -       455       -       -       -       -       -       -       -       455  
Purchase of treasury shares     -       -       (190 )     -       -       -       -       -       -       -       -       (190 )
Dividend paid     -       -       -       -       -       -       -       -       -       -       (4,147 )     (4,147 )
Total transactions with owners of the Company (C)   Rs. -     Rs. 386     Rs. 17     Rs. 111     Rs. -     Rs. -     Rs. -     Rs. -     Rs. -     Rs. -     Rs. (4,147 )   Rs. (3,633 )
Transfer to special economic zone re-investment reserve (D)   Rs. -     Rs. -     Rs. -     Rs. -     Rs. -     Rs. -     Rs. -     Rs. -     Rs. 1,529     Rs. -     Rs. (1,529 )   Rs. -  
Balance as of December 31, 2020 [(A)+(B)+(C)+(D)]   Rs. 831     Rs. 8,881     Rs. (989 )   Rs. 1,344     Rs. 587     Rs. 5,096     Rs. 118     Rs. 173     Rs. 1,529     Rs. (360 )   Rs. 152,185     Rs. 169,395  
Convenience translation  (See note 2(d))   U.S.$ 11     U.S.$ 122     U.S.$ (14)     U.S.$ 18     U.S.$ 8     U.S.$ 70     U.S.$ 2     U.S.$ 2     U.S.$ 21     U.S.$ (5)     U.S.$ 2,084     U.S.$ 2,320  

 

* Rounded to the nearest million.

 

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.

 

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DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY

(in millions, except share and per share data)

 

    Share
capital
    Share
premium
    Treasury
shares
    Share-
based
payment
reserve
    Fair value
reserve(1)
    Foreign
currency
translation
 reserve
    Hedging
reserve
    Capital
redemption
reserve
    Special
economic zone
re-investment
reserve(2)
    Actuarial
gains
/(losses)
    Retained
 earnings
    Total  
Balance as of April 1, 2019 (A)   Rs. 830     Rs. 8,211     Rs. (535 )   Rs. 990     Rs. (1,910 )   Rs. 4,031     Rs. 156     Rs. 173     Rs. -     Rs. (395 )   Rs. 128,646     Rs. 140,197  
Profit for the period     -       -       -       -       -       -       -       -       -       -       11,856       11,856  
Net change in fair value of equity and debt instruments     -       -       -       -       (113 )     -       -       -       -       -       19 (3)      (94 )
Foreign currency translation adjustments     -       -       -       -       -       958       -       -       -       -       -       958  
Effective portion of changes in fair value of cash flow hedges, net of tax benefit of Rs.136     -       -       -       -       -       -       (264 )     -       -       -       -       (264 )
Actuarial gain/(loss) on post-employment benefit obligations, net of tax expense of Rs.1     -       -       -       -       -       -       -       -       -       (1 )     -       (1 )
Total comprehensive income (B)   Rs. -     Rs. -     Rs. -     Rs. -     Rs. (113 )   Rs. 958     Rs. (264 )   Rs. -     Rs. -     Rs. (1 )   Rs. 11,875     Rs. 12,455  
Issue of equity shares on exercise of options     1       261       3       (254 )     -       -       -       -       -       -       -       11  
Share-based payment expense     -       -       -       399       -       -       -       -       -       -       -       399  
Purchase of treasury shares     -       -       (474 )     -       -       -       -       -       -       -       -       (474 )
Dividend paid (including corporate dividend tax)     -       -       -       -       -       -       -       -       -       -       (3,916 )     (3,916 )
Total transactions with owners of the Company (C)   Rs. 1     Rs. 261     Rs. (471 )   Rs. 145     Rs. -     Rs. -     Rs. -     Rs. -     Rs. -     Rs. -     Rs. (3,916 )   Rs. (3,980 )
Balance as of December 31, 2019 [(A)+(B)+(C)]   Rs. 831     Rs. 8,472     Rs. (1,006 )   Rs. 1,135     Rs. (2,023 )   Rs 4,989     Rs. (108 )   Rs. 173     Rs. -     Rs. (396 )   Rs. 136,605     Rs. 148,672  

  

(1) Represents mark to market gain or loss on financial assets classified as fair value through other comprehensive income (“FVTOCI”). Depending on the category and type of the financial asset, the mark to market gain or loss is either reclassified to the income statement or to retained earnings upon disposal of the investment.
(2) The Company has created a Special Economic Zone (“SEZ”) Reinvestment Reserve out of profits of its eligible SEZ Units in accordance with the terms of Section 10AA(1) of the Indian Income Tax Act, 1961. This reserve is to be utilized by the Company for acquiring Plant and Machinery in accordance with Section 10AA(2) of such Act.
(3) Represents gain on disposal of financial instruments classified as FVTOCI instruments re-classified to retained earnings.

 

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.

 

  9  

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS

(in millions, except share and per share data)

 

    For the nine months ended December 31,  
Particulars   2020     2020     2019  
    Convenience
translation
(See Note 2(d))
             
Cash flows from operating activities:                        
Profit for the period   U.S.$ 186     Rs. 13,614     Rs. 11,856  
Adjustments for:                        
Tax expense/(benefit)     91       6,639       (966 )
Fair value changes and profit on sale of units of mutual funds, net     (7 )     (500 )     (780 )
Depreciation and amortization     132       9,627       9,507  
Impairment of non-current assets     92       6,753       16,760  
Allowance for credit losses (on trade receivables and other advances)     2       172       162  
Loss/(gain) on sale or de-recognition of non-current assets, net     1       38       (6 )
Share of profit of equity accounted investees     (4 )     (301 )     (456 )
Foreign exchange loss, net     21       1,513       232  
Interest expense, net     0       13       46  
Equity settled share-based payment expense     6       455       399  
Dividend income     -       -       (5 )
Changes in operating assets and liabilities:                        
Trade and other receivables     (22 )     (1,573 )     (6,493 )
Inventories (Refer to Note 7 for inventory write downs)     (120 )     (8,777 )     (4,166 )
Trade and other payables     56       4,061       3,025  
Other assets and other liabilities, net     (53 )     (3,862 )     3,502  
Cash generated from operations     382       27,872       32,617  
Income tax paid, net     (47 )     (3,435 )     (5,322 )
Net cash from operating activities   U.S.$ 335     Rs. 24,437     Rs. 27,295  
Cash flows (used in)/from investing activities:                        
Expenditure on property, plant and equipment     (94 )     (6,866 )     (3,351 )
Proceeds from sale of property, plant and equipment     1       56       108  
Expenditure on other intangible assets     (34 )     (2,492 )     (667 )
Proceeds from sale of other intangible assets     -       -       259  
Payment for acquisition of business (Refer to Note 29 for details)     (212 )     (15,514 )     -  
Purchase of other investments     (806 )     (58,876 )     (92,804 )
Proceeds from sale of other investments     951       69,411       98,622  
Dividend received from equity accounted investees     -       -       392  
Interest received     15       1,071       688  
Net cash (used in)/from investing activities   U.S.$ (181 )   Rs. (13,210 )   Rs. 3,247  
Cash flows used in financing activities:                        
Proceeds from issuance of equity shares (including treasury shares)     3       249       3  
Purchase of treasury shares     (3 )     (190 )     (474 )
Repayment of short-term borrowings, net     (46 )     (3,347 )     (3,425 )
Proceeds from long-term borrowings     52       3,800       -  
Repayment of long-term borrowings     (51 )     (3,743 )     (21,114 )
Payment of principal portion of lease liabilities     (8 )     (565 )     (393 )
Dividend paid (December 31, 2019 including corporate dividend tax)     (57 )     (4,147 )     (3,916 )
Interest paid     (14 )     (995 )     (1,277 )
Net cash used in financing activities   U.S.$ (122 )   Rs. (8,938 )   Rs. (30,596 )
Net increase/(decrease) in cash and cash equivalents     31       2,289       (54 )
Effect of exchange rate changes on cash and cash equivalents     1       70       70  
Cash and cash equivalents at the beginning of the period     27       1,962       2,228  
Cash and cash equivalents at the end of the period (Refer to Note 4 for details)   U.S.$ 59     Rs. 4,321     Rs. 2,244  

 

The accompanying notes form an integral part of these unaudited condensed consolidated interim financial statements.

 

  10  

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

1. Reporting entity

 

Dr. Reddy’s Laboratories Limited (the “parent company”), together with its subsidiaries and joint ventures (collectively, the “Company”), is a leading India-based pharmaceutical company headquartered and having its registered office in Hyderabad, Telangana, India. Through its three businesses - Pharmaceutical Services and Active Ingredients, Global Generics and Proprietary Products – the Company offers a portfolio of products and services, including Active Pharmaceutical Ingredients (“APIs”), Custom Pharmaceutical Services (“CPS”), generics, biosimilars and differentiated formulations.

 

The Company’s principal research and development facilities are located in the states of Telangana and Andhra Pradesh in India, Cambridge in the United Kingdom and Leiden in the Netherlands; its principal manufacturing facilities are located in the states of Telangana, Andhra Pradesh and Himachal Pradesh in India, Cuernavaca-Cuautla in Mexico, Mirfield in the United Kingdom, and Louisiana in the United States; and its principal markets are in India, Russia, the United States, the United Kingdom, and Germany. The Company’s shares trade on the Bombay Stock Exchange and the National Stock Exchange in India and on the New York Stock Exchange in the United States.

 

2. Basis of preparation of financial statements

 

a) Statement of compliance

 

These unaudited condensed consolidated interim financial statements (hereinafter referred to as “interim financial statements”) are prepared in accordance with IAS 34, “Interim Financial Reporting” as issued by the International Accounting Standards Board (“IASB”). They do not include all of the information required for a complete set of annual financial statements and should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 20-F for the fiscal year ended March 31, 2020. These interim financial statements were authorized for issuance by the Company’s Board of Directors on February 02, 2021.

 

b) Significant accounting policies

 

The accounting policies applied by the Company in these interim financial statements are the same as those applied by the Company in its audited consolidated financial statements as at and for the year ended March 31, 2020 contained in the Company’s Annual Report on Form 20-F.

 

Several amendments and interpretations apply for the first time in the fiscal year ending March 31, 2021, but do not have an impact on these interim financial statements.

 

c) Basis of measurement

 

These interim financial statements have been prepared on the historical cost convention and on an accrual basis, except for the following material items in the statements of financial position:

 

· derivative financial instruments are measured at fair value;

 

· financial assets are measured either at fair value or at amortized cost, depending on the classification;

 

· employee defined benefit assets/(liabilities) are recognized as the net total of the fair value of plan assets, adjusted for actuarial gains/(losses) and the present value of the defined benefit obligation;

 

· long-term borrowings are measured at amortized cost using the effective interest rate method;

 

· share-based payments are measured at fair value;

 

· investments in joint ventures are accounted for using the equity method;

 

· assets held for sale are measured at fair value; and

 

· right-of-use the assets are recognized at the present value of lease payments that are not paid at that date. This amount is adjusted for any lease payments made at or before the commencement date, lease incentives received and initial direct costs incurred, if any.

 

  11  

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

2. Basis of preparation of financial statements (continued)

 

d) Convenience translation

 

These interim financial statements have been prepared in Indian rupees. Solely for the convenience of the reader, these interim financial statements as of and for the three months and nine months ended December 31, 2020 have been translated into U.S. dollars at the certified foreign exchange rate of U.S.$1.00 = Rs.73.01, as published by the Federal Reserve Board of Governors on December 31, 2020. No representation is made that the Indian rupee amounts have been, could have been or could be converted into U.S. dollars at such a rate or any other rate. Such convenience translation is not subject to review by the Company’s independent registered public accounting firm.

 

e) Functional and presentation currency

 

These interim financial statements are presented in Indian rupees, which is the functional currency of the parent company. All financial information presented in Indian rupees has been rounded to the nearest million.

 

In respect of certain non-Indian subsidiaries that operate as marketing arms of the parent company in their respective countries/regions, the functional currency has been determined to be the functional currency of the parent company (i.e., the Indian rupee). The operations of these entities are largely restricted to importing of finished goods from the parent company in India, sales of these products in the foreign country and making of import payments to the parent company. The cash flows realized from sales of goods are available for making import payments to the parent company and cash is paid to the parent company on a regular basis. The costs incurred by these entities are primarily the cost of goods imported from the parent company. The financing of these subsidiaries is done directly or indirectly by the parent company.

 

In respect of subsidiaries whose operations are self-contained and integrated within their respective countries/regions, the functional currency has been generally determined to be the local currency of those countries/regions, unless use of a different currency is considered appropriate.

 

f) Use of estimates and judgments

 

The preparation of interim financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. In preparing these interim financial statements, the significant judgments made by management in applying the Company’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the audited consolidated financial statements as at and for the year ended March 31, 2020.

 

g) New accounting standards effective as on April 1, 2020

 

Amendments to IFRS 3: Definition of a Business

 

In May 2020, the IASB issued an amendment to IFRS 3 “Business Combinations – Reference to the Conceptual Framework.” The amendment is effective as of January 1, 2020, although companies may choose to apply it earlier under certain circumstances. The amendment to IFRS 3 clarifies that to be considered a business, an integrated set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. Furthermore, it clarified that a business can exist without including all of the inputs and processes needed to create outputs. These amendments had no impact on these interim financial statements, but may impact future periods should the Company enter into any business combinations.

 

Amendments to IFRS 7, IFRS 9 and IAS 39: Interest Rate Benchmark Reform

 

The International Accounting Standards Board (“IASB”) published Interest Rate Benchmark Reform Amendments to IFRS 9, IAS 39 and IFRS 7 representing the finalization of Phase II of the project on August 27, 2020 to address issues that might affect financial reporting when an existing interest rate benchmark is replaced with an alternative benchmark interest rate.

 

The amendments provide a number of reliefs, which apply to all hedging relationships that are directly affected by interest rate benchmark reform. A hedging relationship is affected if the reform gives rise to uncertainties about the timing and or amount of benchmark-based cash flows of the hedged item or the hedging instrument. These amendments had no impact on these interim financial statements as it does not have any interest rate hedge relationships.

 

  12  

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

2. Basis of preparation of financial statements (continued)

 

g) New accounting standards effective as on April 1, 2020 (continued)

 

Amendments to IAS 1 and IAS 8: Definition of Material

 

The amendments provide a new definition of material that states “information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.” The amendments clarify that materiality will depend on the nature or magnitude of information, either individually or in combination with other information, in the context of the financial statements. A misstatement of information is material if it could reasonably be expected to influence decisions made by the primary users. These amendments had no impact on these interim financial statements.

 

  13  

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

3. Segment reporting

 

The Chief Operating Decision Maker (“CODM”) evaluates the Company’s performance and allocates resources based on an analysis of various performance indicators by operating segments. The CODM reviews revenue and gross profit as the performance indicator for all of the operating segments, and does not review the total assets and liabilities of an operating segment. The Co-Chairman and Managing Director was previously the CODM of the Company. Pursuant to certain organizational changes, effective December 1, 2020, the office of Chief Executive Officer (“CEO”) assumed the authority and responsibility for making decisions about resources to be allocated to various segments and assessing their performance. Consequently, the CEO is currently the CODM of the Company.

 

The Company’s reportable operating segments are as follows:

Global Generics;
Pharmaceutical Services and Active Ingredients (“PSAI”);
Proprietary Products; and
Others.

 

Global Generics. This segment consists of the Company’s business of manufacturing and marketing prescription and over-the-counter finished pharmaceutical products ready for consumption by the patient, marketed under a brand name (branded formulations) or as generic finished dosages with therapeutic equivalence to branded formulations (generics). This segment includes the operations of the Company’s biologics business.

 

Pharmaceutical Services and Active Ingredients. This segment primarily consists of the Company’s business of manufacturing and marketing active pharmaceutical ingredients and intermediates, also known as “API”, which are the principal ingredients for finished pharmaceutical products. Active pharmaceutical ingredients and intermediates become finished pharmaceutical products when the dosages are fixed in a form ready for human consumption such as a tablet, capsule or liquid using additional inactive ingredients. This segment also includes the Company’s contract research services business and the manufacture and sale of active pharmaceutical ingredients and steroids in accordance with the specific customer requirements.

 

Proprietary Products. This segment consists of the Company’s business that focuses on the research and development of differentiated formulations. The segment is expected to earn revenues arising out of monetization of such assets and subsequent royalties, if any.

 

Others. This segment consists of the operations of the Company’s wholly-owned subsidiary, Aurigene Discovery Technologies Limited (“ADTL”), a discovery stage biotechnology company developing novel and best-in-class therapies in the fields of oncology and inflammation. ADTL works with established pharmaceutical and biotechnology companies through customized models of drug-discovery collaborations.

 

The measurement of each segment’s revenues, expenses and assets is consistent with the accounting policies that are used in preparation of the Company’s consolidated financial statements.

 

  14  

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

3. Segment reporting (continued)

 

Information about segments:   For the nine months ended December 31, 2020     For the nine months ended December 31, 2019  
Segments   Global
Generics
    PSAI    

Proprietary

Products

    Others     Total     Global
Generics
    PSAI    

Proprietary

Products

    Others     Total  
Revenues(1)   Rs. 115,667     Rs. 24,067     Rs. 280     Rs. 2,424     Rs. 142,438     Rs. 101,725     Rs. 18,552     Rs. 7,947     Rs. 2,058     Rs. 130,282  
Gross profit   Rs. 68,665     Rs. 6,913     Rs. 244     Rs. 1,880     Rs. 77,702     Rs. 58,117     Rs. 4,147     Rs.  7,751     Rs. 1,186     Rs. 71,201  
Selling, general and administrative expenses                                     40,280                                       37,952  
Research and development expenses                                     12,447                                       11,220  
Impairment of non-current assets                                     6,753                                       16,760  
Other income, net                                     (395 )                                     (4,122 )
Results from operating activities                                   Rs. 18,617                                     Rs. 9,391  
Finance income, net                                     1,335                                       1,043  
Share of profit of equity accounted investees, net of tax                                     301                                       456  
Profit before tax                                   Rs. 20,253                                     Rs. 10,890  
Tax expense/(benefit)                                     6,639                                       (966 )
Profit for the period                                   Rs. 13,614                                     Rs. 11,856  
             
Information about segments:   For the three months ended December 31, 2020     For the three months ended December 31, 2019  
Segments   Global
Generics
    PSAI    

Proprietary

Products

    Others     Total     Global
Generics
    PSAI    

Proprietary

Products

    Others     Total  
Revenues(1)   Rs. 40,751     Rs. 7,009     Rs. 124     Rs. 1,412     Rs. 49,296     Rs. 35,927     Rs. 6,906     Rs. 241     Rs. 764     Rs. 43,838  
Gross profit   Rs. 23,454     Rs. 1,773     Rs. 100     Rs. 1,211     Rs. 26,538     Rs. 20,910     Rs. 2,072     Rs. 246     Rs. 494     Rs. 23,722  
Selling, general and administrative expenses                                     14,387                                       12,670  
Research and development expenses                                     4,108                                       3,949  
Impairment of non-current assets                                     5,972                                       13,200  
Other income, net                                     (128 )                                     (228 )
Results from operating activities                                   Rs. 2,199                                     Rs. (5,869 )
Finance income, net                                     493                                       419  
Share of profit of equity accounted investees, net of tax                                     151                                       176  
Profit/(loss) before tax                                 Rs. 2,843                                     Rs. (5,274 )
Tax expense/(benefit)                                     2,645                                       423  
Profit/(loss) for the period                                   Rs. 198                                     Rs. (5,697 )

 

(1) Revenues for the nine months ended December 31, 2020 and 2019 do not include inter-segment revenues from the PSAI segment to the Global Generics segment, which amount to Rs.5,024 and Rs.4,432, respectively. Revenues for the three months ended December 31, 2020 and 2019 do not include inter-segment revenues from the PSAI segment to the Global Generics segment, which amount to Rs.1,736 and Rs.1,643, respectively.

 

  15  

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

3. Segment reporting (continued)

 

Analysis of revenues by geography:

 

The following table shows the distribution of the Company’s revenues by country, based on the location of the customers:

 

   

For the nine months

ended December 30,

   

For the three months

ended December 30,

 
Country   2020     2019     2020     2019  
India   Rs. 27,162     Rs. 24,503     Rs. 10,230     Rs. 8,580  
United States     58,088       56,882       19,647       17,261  
Russia     11,779       12,986       4,529       4,917  
Others     45,409       35,911       14,890       13,080  
    Rs. 142,438     Rs. 130,282     Rs. 49,296     Rs. 43,838  

 

4. Cash and cash equivalents

 

Cash and cash equivalents consist of the following:

 

    As of  
    December 31, 2020     March 31, 2020  
Cash on hand   Rs. 2     Rs. 2  
Balances with banks     3,237       1,807  
Term deposits with banks (original maturities less than 3 months)     1,082       244  
Cash and cash equivalents in the statements of financial position   Rs. 4,321     Rs. 2,053  
Restricted cash balances included above                
Balance in unclaimed dividends and debenture interest account   Rs. 108     Rs. 111  
Balances in Escrow account pursuant to the Business Transfer Agreement with Wockhardt Limited (Refer to Note 29 for details)     40       -  
Other restricted cash balances     82       15  
                 
    As of  
      December 31, 2020       December 31, 2019  
Cash and cash equivalents in the statements of cash flow   Rs. 4,321     Rs. 2,244  

 

5. Other investments

 

Other investments consist of investments in units of mutual funds, equity securities, bonds, market linked debentures, commercial paper and term deposits with banks (i.e., certificates of deposit having an original maturity period exceeding 3 months). The details of such investments as of December 31, 2020 and March 31, 2020 were as follows:

 

    As of December 31, 2020     As of March 31, 2020  
    Cost    

Unrealized

gain

   

Fair value/
amortized

cost(2)

    Cost    

Unrealized

gain/(loss)

   

Fair value/
amortized

cost(2)

 
Current portion                                                
In units of mutual funds   Rs. 6,128     Rs. 86     Rs. 6,214     Rs. 13,686     Rs. 146     Rs. 13,832  
In bonds     522       -       522       1,851       -       1,851  
In commercial paper     977       -       977       967       -       967  
In market linked debentures     -       -       -       2,000       (7 )     1,993  
Term deposits with banks     3,817       -       3,817       5,044       -       5,044  
    Rs. 11,444     Rs. 86     Rs. 11,530     Rs. 23,548     Rs. 139     Rs. 23,687  
Non-current portion                                                
In equity securities(1)   Rs. 2,701     Rs. 587     Rs. 3,288     Rs. 2,701     Rs. (2,397 )   Rs. 304  
Term deposits with banks     2,119       -       2,119       -       -       -  
Others     24       -       24       24       -       24  
    Rs. 4,844     Rs. 587     Rs. 5,431     Rs. 2,725     Rs. (2,397 )   Rs. 328  

 

  16  

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

5.  Other investments (continued)

 

(1) Primarily represents the shares of Curis, Inc. issued to the Company under a 2015 Collaboration Agreement with Curis, Inc., as amended. For further details, refer to Note 33 of the consolidated financial statements in the Company’s Annual Report on Form 20-F for the fiscal year ended March 31, 2020.
(2) Interest accrued but not due on bonds and debentures, commercial paper and term deposits with banks is included in other current assets.

 

For the purpose of measurement, the aforesaid investments are classified as follows:

 

Investments in units of mutual funds Fair value through profit and loss
Investments in bonds, commercial paper, term deposits and others Amortized cost
Investments in market linked debentures Fair value through other comprehensive income
Investments in equity securities Fair value through other comprehensive income (on account of irrevocable option elected at time of transition)

 

6. Trade and other receivables

 

    As of  
    December 31, 2020     March 31, 2020  
Current                
Trade and other receivables, gross   Rs. 54,478     Rs.       51,480  
Less: Allowance for credit losses     (1,313 )     (1,202 )
Trade and other receivables, net   Rs. 53,165     Rs. 50,278  
Non-current                
Trade and other receivables, gross(1)   Rs. 243     Rs. 1,737  
Less: Allowance for credit losses     -       -  
Trade and other receivables, net   Rs. 243     Rs. 1,737  

 

(1) Represents amounts receivable pursuant to an out-licensing arrangement with a customer. As these amounts are not expected to be realized within twelve months from the end of the reporting date, they are disclosed as non-current.

 

Pursuant to an arrangement with a bank, the Company sells to the bank certain of its trade receivables forming part of its Global Generics segment, on a non-recourse basis. The receivables sold were mutually agreed upon with the bank after considering the creditworthiness and contractual terms with the customer, including any gross to net adjustments (due to rebates, discounts etc.) from the contracted amounts. As a result, the receivables sold are generally lower than the total net amount of trade receivables. The Company has transferred substantially all the risks and rewards of ownership of such receivables sold to the bank, and accordingly, the same are derecognized in the statements of financial position. As on December 31, 2020 and March 31, 2020, the amount of trade receivables de-recognized pursuant to the aforesaid arrangement was Rs.9,157 and Rs.9,049, respectively.

 

7. Inventories

 

Inventories consist of the following:

 

    As of  
    December 31, 2020     March 31, 2020  
Raw materials   Rs. 12,838     Rs.      10,594  
Work-in-progress     9,542       6,806  
Finished goods (includes stock-in-trade)     18,681       15,126  
Packing materials, stores and spares     3,248       2,540  
    Rs. 44,309      Rs. 35,066  

 

  17  

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

7. Inventories (continued)

 

Details of inventories recognized in these interim financial statements are as follows:

 

   

For the nine months

ended December 30,

   

For the three months

ended December 30,

 
    2020     2019     2020     2019  
Raw materials, consumables and changes in finished goods and work in progress   Rs. 43,396     Rs. 37,646     Rs. 15,927     Rs. 13,481  
Inventory write-downs(1)     1,978       2,587       450       672  

 

(1) Following the Company’s decision to voluntarily recall all of its ranitidine medications sold in the United States due to confirmed contamination with N-Nitrosodimethylamine (“NDMA”) above levels established by the U.S. FDA, the Company recognized Rs.231 as inventory write downs towards semi-finished and finished inventory of ranitidine during the nine months ended December 31, 2019. Further, an amount of Rs.170 was recognized as a possible refund liability (as a reduction from revenue) arising out of the Company’s decision to recall such product.

 

8. Property, plant and equipment

 

Acquisitions and disposals

 

   

For the nine months ended

December 31,

   

For the year ended

March 31,

 
    2020     2019     2020  
Cost of assets acquired during the period(1)   Rs. 10,105     Rs. 3,822     Rs. 5,667  
Assets acquired through business combinations(2)     373       -       -  
Recognition of right-of-use asset on initial application of IFRS 16     -       1,153       1,153  
Net book value of assets disposed of during the period     104       44       81  
Depreciation expense     6,438       6,560       8,640  
Net book value of assets held for sale (A)     196       -       -  
Impairment loss recorded on write-down of assets to fair value less costs to sell (B)     46       -       -  
Assets held for sale [(A)-(B)]     150       -       -  

 

(1) Additions for the nine months ended December 31, 2020 include recognition of a right-of-use asset of Rs.1,852 relating to a warehousing services agreement in the United States.

 

(2) Refer to Note 29 of these interim financial statements for further details.

 

Capital commitments

 

As of December 31, 2020 and March 31, 2020, the Company was committed to spend Rs.9,369 and Rs.4,888, respectively, under agreements to purchase property, plant and equipment. This amount is net of capital advances paid in respect of such purchase commitments.

 

9. Goodwill

 

Goodwill arising on business combinations is not amortized but is tested for impairment at least annually, or more frequently if there is any indication that the cash generating unit to which goodwill is allocated is impaired.

 

The following table presents goodwill as of December 31, 2020 and March 31, 2020:

 

    As of  
    December 31, 2020     March 31, 2020  
Opening balance, gross   Rs. 20,278     Rs.       20,176  
Goodwill arising on business combinations(1)     530       -  
Effect of translation adjustments     110       102  
Impairment loss(2)     (16,284 )     (16,284 )
Closing balance   Rs. 4,634     Rs. 3,994  

 

  18  

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

9. Goodwill (continued)

 

(1) Refer to Note 29 of these interim financial statements for further details.

 

(2) The impairment loss of Rs.16,284 includes Rs.16,003 pertaining to the Company’s German subsidiary, betapharm Arzneimittel GmbH, which is part of the Company’s Global Generics segment. This impairment loss was recorded for the years ended March 31, 2009 and 2010.

 

10. Other intangible assets

 

   

For the nine months ended

December 31,

    For the year ended
March 31,
 
    2020     2019     2020  
Cost of assets acquired during the period(1)(2)   Rs. 4,234     Rs. 1,211     Rs. 1,806  
Assets acquired through business combinations(3)     14,888       -       -  
Net book value of assets disposed of during the period     -       58       65  
Amortization expense     3,189       2,947       3,832  
Impairment loss recognized during the period(4)(5)     6,707       16,750       16,757  

 

(1) Assets acquired during the nine months ended December 31, 2020 includes the following:

 

· Rs.1,471 representing the estimated payment for the purchase of intellectual property rights relating to product forming part of Company’s Proprietary Products segment.

 

· The Company entered into a definitive agreement with Glenmark Pharmaceuticals Limited to acquire marketing authorizations and other rights of select brands in four “Emerging Markets” countries (as discussed below). The acquired brands represent two products, (a) mometasone mono product and (b) combination of mometasone with azelastine, and are indicated for the treatment of seasonal and perennial allergic rhinitis. The total consideration paid was Rs.1,516. Following the principles of IAS 38, “Intangible assets”, the Company recognized the acquired brands at their acquisition cost. The acquisition pertains to the Company’s Global Generics segment.

 

(2) Assets acquired during the nine months ended December 31, 2019 and the year ended March 31, 2020 includes, a portfolio of approved, non-marketed Abbreviated New Drug Applications (“ANDAs”) in the United States from Teva for a total consideration of Rs.277 (U.S.$4). The Company recognized these ANDAs acquired as product related intangibles.

 

(3) Refer Note 29 of these interim financial statements for further details.

 

(4) Impairment charge of Rs.6,707 for the nine months ended December 31, 2020 includes the following:

 

· Impairment of gNuvaring: During the three months ended December 31, 2020, there were significant changes to the generics market for Ethinyl estradiol/Ethenogestral vaginal ring (a generic equivalent to Nuvaring®), one of the 8 ANDAs acquired from Teva in June 2016. The changes include the launch by a competitor of a generic version of the product in January 2021. Due to these adverse market developments, the Company tested the carrying value of this product at the product cash generating unit (“CGU”) level, being the smallest identifiable group of assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The recoverable amount was determined by reference to the product’s value-in-use or fair value less costs to sell, whichever is higher. This resulted in the value-in-use being the recoverable value of the product. Accordingly, the Company recorded an impairment loss of Rs.3,180 for the nine months ended December 31, 2020. This impairment loss pertained to the Company’s Global Generics segment.

 

· Impairment of saxagliptin/metformin (generic version of Kombiglyze®-XR) and phentermine and topiramate (generic version of Qsymia®): With respect to the foregoing two of the 8 ANDAs acquired from Teva in June 2016, there has been a significant decrease in the market potential of these products, primarily due to higher than expected value erosion. Accordingly, the Company assessed the recoverable amount by revisiting market volume, share and price assumptions for these two products and recorded an amount of Rs.1,587 as impairment loss for the nine months ended December 31, 2020. This impairment loss pertained to the Company’s Global Generics segment.

 

· In view of the specific triggers occurring in the period with respect to some other product related intangible assets forming part of the Company's Global Generics and Proprietary Products segments, the Company determined that there was a decrease in the market potential of these products primarily due to higher than expected price erosion and increased competition leading to lower volumes. Consequently, the Company recorded an amount of Rs.1,940 as impairment loss for the nine months ended December 31, 2020.

 

The Company used the discounted cash flow approach to calculate the value-in-use which considered assumptions such as revenue projections, rate of generic penetration, estimated price erosion, the useful life of the asset and the net cash flows have been discounted based on post tax discount rate.

 

  19  

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

10. Other intangible assets (continued)

 

(5) Total impairment loss for the year ended March 31, 2020 and the nine months ended December 31, 2019 were Rs.16,757 and Rs.16,750, respectively. For these periods, Rs.11,137 pertained to impairment of gNuvaring, Rs.4,385 pertained to impairment of ramelteon, tobramycin and imiquimod, and the balance pertained to other product related intangibles forming part of the Company’s Global Generics and Proprietary Products segments.

 

Details of significant separately acquired intangible assets as of December 31, 2020 are as follows:

 

Particulars of the asset   Acquired from   Carrying cost  
Select portfolio of branded generics business   Wockhardt Limited   Rs. 14,438  
Select portfolio of dermatology, respiratory and pediatric assets   UCB India Private Limited and affiliates     4,693  
Various ANDAs   Teva and an affiliate of Allergan     4,193  
Intellectual property rights relating to PPC-06 (tepilamide fumarate)   Xenoport, Inc.     3,995  
Commercialization rights for an anti-cancer biologic agent   Eisai Company Limited     1,823  
Select Anti-Allergy brands   Glenmark Pharmaceuticals Limited     1,512  
Habitrol® brand   Novartis Consumer Health Inc.     1,350  
Over the counter product brands   Ducere Pharma LLC     502  
Beta brand   3i Group plc     407  
Various ANDAs   Gland Pharma Limited     264  

 

11. Loans and borrowings

 

Short-term borrowings

 

Short-term borrowings primarily consist of “pre-shipment credit” drawn by the parent company and other unsecured loans drawn by certain of its subsidiaries in Russia, Mexico, the United States, Brazil, South Africa and Switzerland which are repayable within 6 to 12 months from the date of drawdown.

 

Short-term borrowings consisted of the following:

 

    As of  
    December 31, 2020     March 31, 2020  
Pre-shipment credit   Rs. 8,800     Rs.                  10,432  
Other working capital borrowings     4,310       6,009  
    Rs. 13,110     Rs. 16,441  

 

The interest rate profile of short-term borrowings from banks were as follows:

  

  As of  
  December 31, 2020   March 31, 2020  
  Currency(1)   Interest Rate(2)   Currency(1)   Interest Rate(2)  
Pre-shipment credit INR   1 Month T-bill + 35 bps   INR   1 Month T-bill + 60 bps  
  INR   5.75%   -   -  
  -   -   U.S.$   1 Month LIBOR + 12.5  to 16 bps  
Other working capital borrowings MXN   TIIE + 1.20%   MXN   TIIE + 1.25%  
  BRL   4.00%   BRL   7.25%  
  RUB   5.55%   RUB   7.05%  
  INR   5.90%/7.30%   INR   7.75%  
  U.S.$   1 Month LIBOR + 125 bps   U.S.$   1 Month/3 Months LIBOR + 55  to 78 bps  
  -   -   ZAR   1 Month JIBAR+120 bps  

 

(1) “INR” means Indian rupees, “U.S.$” means United States Dollars, “RUB” means Russian roubles, “MXN” means Mexican pesos, “BRL” means Brazilian reals and “ZAR” means South African rand.

 

(2) “LIBOR” means the London Inter-bank Offered Rate, “TIIE” means the Equilibrium Inter-banking Interest Rate (Tasa de Interés Interbancaria de Equilibrio), “JIBAR” means the Johannesburg Interbank Average Rate and “T-bill” means the India Treasury Bill interest rate.

 

  20  

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

11. Loans and borrowings (continued)

 

Long-term borrowings

 

Long-term borrowings consisted of the following:

 

    As of  
    December 31, 2020     March 31, 2020  
    Non – Current     Current     Non – Current     Current  
Foreign currency borrowing by the parent company   Rs. -     Rs. -     Rs. -     Rs. 3,783  
Non-convertible debentures by the APSL subsidiary(1)     3,800       -       -       -  
Obligations under leases(2)     2,708       825       1,304       483  
    Rs. 6,508     Rs. 825     Rs. 1,304     Rs. 4,266  

 

  (1) “APSL subsidiary” refers to Aurigene Pharmaceutical Services Limited.

 

  (2) Additions for the nine months ended December 31, 2020 include right-of-use liability of Rs.1,878 relating to a warehousing services agreement in the United States.

 

During the nine months ended December 31, 2020, the APSL subsidiary issued non-convertible debentures for Rs.3,800. The aforesaid non-convertible debentures are repayable at par after 3 years following the date of issue.

 

The interest rate profiles of long-term borrowings (other than obligations under leases) were as follows:

 

    As of  
    December 31, 2020     March 31, 2020  
    Currency(1)     Interest Rate(2)     Currency(1)     Interest Rate(2)  
Foreign currency borrowings     -       -       U.S.$       1 Month LIBOR + 82.7 bps  
Non-convertible debentures     INR       6.77 %     -       -  

 

  (1) “U.S.$” means United States dollars and “INR” means Indian rupees.

 

  (2) “LIBOR” means the London Inter-bank Offered Rate.

 

Uncommitted lines of credit from banks

 

The Company had uncommitted lines of credit of Rs.48,708 and Rs.39,374 as of December 31, 2020 and March 31, 2020, respectively, from its banks for working capital requirements. The Company has the right to draw upon these lines of credit based on its working capital requirements.

 

12. Share capital

 

The following table presents the changes in number of equity shares and amount of equity share capital for the nine months ended December 31, 2020 and December 31, 2019:

 

    As of  
    December 31, 2020     December 31, 2019  
    Number     Amount     Number     Amount  
Opening number of equity shares/share capital     166,172,082     Rs. 831       166,065,948     Rs. 830  
Add: Equity shares issued pursuant to employee stock option plans(1)     126,034       - *     97,200       1  
Closing number of equity shares/share capital     166,298,116     Rs. 831       166,163,148     Rs. 831  
Treasury shares(2)     361,504     Rs. 989       395,950     Rs. 1,006  

 

* Rounded off to nearest million.

 

  21  

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

12. Share capital (continued)

 

  (1) During the nine months ended December 31, 2020 and 2019, equity shares were issued as a result of the exercise of vested options granted to employees pursuant to the Dr. Reddy’s Employees Stock Option Scheme, 2002 and the Dr. Reddy’s Employees Stock Option Scheme, 2007. The options exercised had an exercise price of Rs.5, Rs.2,607 or Rs.2,814 per share. Upon the exercise of such options, the amount of compensation cost (computed using the grant date fair value) previously recognized in the "share-based payment reserve” was transferred to “share premium” in the unaudited condensed consolidated interim statements of changes in equity.

 

  (2) Pursuant to the special resolution approved by the shareholders in the Annual General Meeting held on July 27, 2018, the Dr. Reddy’s Employees ESOS Trust (the “ESOS Trust”) was formed to support the Dr. Reddy’s Employees Stock Option Scheme, 2018 by acquiring, from the Company or through secondary market acquisitions, equity shares which are used for issuance to eligible employees (as defined therein) upon exercise of stock options thereunder. During the nine months ended December 31, 2020, an aggregate of 77,725 equity shares were issued as a result of the exercise of vested options granted to employees pursuant to the Dr. Reddy’s Employees Stock Option Scheme, 2018. The options exercised had an exercise price of Rs.2,607 or Rs.2,814 per share. Upon the exercise of such options, the amount of compensation cost (computed using the grant date fair value) previously recognized in the “share based payment reserve” was transferred to “share premium” in the unaudited condensed consolidated interim statements of changes in equity. In addition, any difference between the carrying amount of treasury shares and the consideration received was recognized in the “share premium”. As of December 31, 2020 and March 31, 2020, the ESOS Trust had outstanding 361,504 and 395,950 shares, respectively, which it purchased from the secondary market for an aggregate consideration of Rs.989 and Rs.1,006, respectively.

 

13. Revenue from contracts with customers

 

    For the nine months
ended December 31,
    For the three months
ended December 31,
 
    2020     2019     2020     2019  
Sales   Rs. 138,119     Rs. 120,213     Rs. 47,109     Rs. 42,607  
Service income     3,386       1,748       1,821       685  
License fees     933       8,321       366       546  
    Rs. 142,438     Rs. 130,282     Rs. 49,296     Rs. 43,838  

 

Analysis of revenues by geography:

The following table shows the distribution of the Company’s revenues by country, based on the location of the customers:

 

    For the nine months
ended December 31,
    For the three months
ended December 31,
 
Country   2020     2019     2020     2019  
India   Rs. 27,162     Rs. 24,503     Rs. 10,230     Rs. 8,580  
United States     58,088       56,882       19,647       17,261  
Russia     11,779       12,986       4,529       4,917  
Others     45,409       35,911       14,890       13,080  
    Rs. 142,438     Rs. 130,282     Rs. 49,296     Rs. 43,838  

 

Refund liabilities on account of sales returns amounting to Rs.3,220 and Rs.3,252 as of December 31, 2020 and March 31, 2020, respectively, have been included in provisions forming part of current liabilities.

 

14. Other income, net

 

Other income, net consists of the following:

 

    For the nine months
ended December 31,
    For the three months
ended December 31,
 
    2020     2019     2020     2019  
Loss/(gain) on sale/disposal of non-current assets, net   Rs. 38     Rs. (64 )   Rs. 23     Rs. (45 )
Sale of spent chemicals     (179 )     (231 )     (66 )     (82 )
Scrap sales     (99 )     (117 )     (44 )     (36 )
Miscellaneous income, net(1)     (155 )     (3,710 )     (41 )     (65 )
    Rs. (395 )   Rs. (4,122 )   Rs. (128 )   Rs. (228 )

 

  22  

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

14. Other income, net (continued)

 

  (1) Miscellaneous income, net for the nine months ended December 31, 2019 includes Rs.3,457 (U.S.$50) received from Celgene pursuant to a settlement agreement entered into in April 2019. The agreement effectively settles any claim the Company or its affiliates may have had for damages under section 8 of the Canadian Patented Medicines (Notice of Compliance) Regulations in regard to the Company’s ANDS for a generic version of REVLIMID® brand capsules (lenalidomide) pending before Health Canada.

 

15. Finance income, net

 

Finance income, net consists of the following:

 

    For the nine months
ended December 31,
    For the three months
ended December 31,
 
    2020     2019     2020     2019  
Interest income   Rs. 660     Rs. 707     Rs. 257     Rs. 207  
Fair value changes and profit on sale of units of mutual funds, net     500       780       111       218  
Foreign exchange gain, net     848       304       313       146  
Miscellaneous income, net     -       5       -       -  
Finance income (A)   Rs. 2,008     Rs. 1,796     Rs. 681     Rs. 571  
Interest expense     (673 )     (753 )     (188 )     (152 )
Finance expense (B)   Rs. (673 )   Rs. (753 )   Rs. (188 )   Rs. (152 )
Finance income, net [(A)+(B)]   Rs. 1,335     Rs. 1,043     Rs. 493     Rs. 419  

 

16. Income taxes

 

Income tax expense is recognized based on the Company’s best estimate of the average annual income tax rate for the fiscal year applied to the pre-tax income of the interim period. The average annual income tax rate is determined for each taxing jurisdiction and applied individually to the interim period pre-tax income of each jurisdiction. The difference between the estimated average annual income tax rate and the enacted tax rate is accounted for by a number of factors, including the effect of differences between Indian and foreign tax rates, expenses that are not deductible for tax purposes, incomes exempted from income taxes, and effects of changes in tax laws and rates.

 

    For the nine months
ended December 31,
    For the three months
ended December 31,
 
    2020     2019     2020     2019  
Weighted average tax rate     32.78 %     (8.9 )%     93.04 %     (8.02 )%
Tax expense/(benefit)   Rs. 6,639     Rs. (966 )   Rs. 2,645     Rs. 423  
Tax expense/(benefit) recognised directly in the equity   Rs. 295     Rs. (135 )   Rs. 1     Rs. (48 )

 

The effective rate of tax for the nine months ended December 31, 2019 was lower primarily on account of recognition of a deferred tax asset related to the Minimum Alternate Tax (“MAT”) credits, losses and weighted deduction on eligible research and development expenditure in Dr. Reddy’s Laboratories Limited, India.

 

The effective rate of tax for the three months ended December 31, 2019 was lower primarily on account of weighted deduction on eligible research and development expenditure and on account of recognition of deferred tax assets related to losses.

 

Tax expenses/(benefits) recognized directly in the equity primarily relates to tax effects on the changes in fair value of financial instruments and the changes in fair value of cash flow hedges.

 

  23  

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

17. Nature of expense

 

The following table shows supplemental information related to certain “nature of expense” items for the three months and nine months ended December 31, 2020 and 2019:

 

    For the nine months
ended December 31,
    For the three months
ended December 31,
 
Depreciation   2020     2019     2020     2019  
Cost of revenues   Rs. 4,595     Rs. 4,842     Rs. 1,510     Rs. 1,576  
Selling, general and administrative expenses     1,118       1,000       378       308  
Research and development expenses     725       718       243       247  
    Rs. 6,438     Rs. 6,560     Rs. 2,131     Rs. 2,131  

 

    For the nine months
ended December 31,
    For the three months
ended December 31,
 
Amortization   2020     2019     2020     2019  
Cost of revenues   Rs. -     Rs. 175     Rs. -     Rs. 33  
Selling, general and administrative expenses     3,109       2,687       1,058       895  
Research and development expenses     80       85       27       26  
    Rs. 3,189     Rs. 2,947     Rs. 1,085     Rs. 954  

 

    For the nine months
ended December 31,
    For the three months
ended December 31,
 
Employee benefits   2020     2019     2020     2019  
Cost of revenues   Rs. 8,701     Rs. 8,006     Rs. 2,753     Rs. 2,559  
Selling, general and administrative expenses     15,111       13,885       5,225       4,707  
Research and development expenses     3,557       3,356       1,179       1,111  
    Rs. 27,369     Rs. 25,247     Rs. 9,157     Rs. 8,377  

 

18. Employee benefit plans

 

Gratuity benefits provided by the parent company

 

In accordance with applicable Indian laws, the Company has a defined benefit plan which provides for gratuity payments (the “Gratuity Plan”) and covers certain categories of employees in India. The Gratuity Plan provides a lump sum gratuity payment to eligible employees at retirement or termination of their employment. The amount of the payment is based on the respective employee’s last drawn salary and the years of employment with the Company. Effective September 1, 1999, the Company established the Dr. Reddy’s Laboratories Gratuity Fund (the “Gratuity Fund”) to fund the Gratuity Plan. Liabilities in respect of the Gratuity Plan are determined by an actuarial valuation, based upon which the Company makes contributions to the Gratuity Fund. Trustees administer the contributions made to the Gratuity Fund. Amounts contributed to the Gratuity Fund are invested in bonds issued by the Government of India, in debt securities and in equity securities of Indian companies. The liability recorded by the Company towards this obligation was Rs.224 and Rs.189 as at December 31, 2020 and March 31, 2020, respectively.

 

Compensated absences

 

The Company provides for accumulation of compensated absences by certain categories of its employees. These employees can carry forward a portion of the unutilized compensated absences and utilize them in future periods or receive cash in lieu thereof as per the Company’s policy. The Company records a liability for compensated absences in the period in which the employee renders the services that increases this entitlement. The total liability recorded by the Company towards this obligation was Rs.1,030 and Rs.1,161 as at December 31, 2020 and March 31, 2020, respectively.

 

  24  

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

19. Employee stock incentive plans

 

Pursuant to the special resolutions approved by the shareholders in the Annual General Meetings held on September 24, 2001, on July 27, 2005, and on July 27, 2019 respectively, the Company instituted the Dr. Reddy’s Employees Stock Option Scheme, 2002 (the “DRL 2002 Plan”), the Dr. Reddy’s Employees ADR Stock Option Scheme, 2007 (the “DRL 2007 Plan”), and Dr. Reddy’s Employees Stock Option Scheme, 2019 (the “DRL 2019 Plan”) each of which allows for grants of stock options to eligible employees.

 

Grants under Stock Incentive Plans

 

The terms and conditions of the grants made during the nine months ended December 31, 2020 under the above plans were as follows:

 

Particulars   Number of
instruments
    Exercise price     Vesting period   Contractual
life
DRL 2002 Plan     92,092     Rs. 5.00     1 to 4 years   5 years
DRL 2007 Plan     52,316     Rs. 5.00     1 to 4 years   5 years
DRL 2007 Plan     96,080     Rs. 3,679.00     1 to 4 years   5 years
DRL 2018 Plan     150,740     Rs. 3,679.00     1 to 4 years   5 years

 

The above grants were made on May 19, 2020 and October 27, 2020.

 

The terms and conditions of the grants made during the nine months ended December 31, 2019 under the above plans were as follows:

 

Particulars   Number of
instruments
    Exercise price     Vesting period   Contractual
life
DRL 2002 Plan     49,796     Rs. 5.00     1 to 4 years   5 years
DRL 2007 Plan     89,282     Rs. 5.00     1 to 4 years   5 years
DRL 2007 Plan     61,700     Rs. 2,814.00     1 to 4 years   5 years
DRL 2018 Plan     167,500     Rs. 2,814.00     1 to 4 years   5 years

 

The above grants were made on May 16, 2019 and October 31, 2019.

 

The fair value of services received in return for stock options granted to employees is measured by reference to the fair value of stock options granted. The fair value of stock options has been measured using the Black-Scholes-Merton valuation model at the date of the grant.

 

The weighted average inputs used in computing the fair value of such grants were as follows:

 

    October 27,
2020
    May 19,
2020
    May 19,
2020
    October 31,
2019
    May 16,
2019
    May 16,
2019
 
Expected volatility     30.81 %     29.12 %     30.47 %     27.10 %     28.25 %     29.29 %
Exercise price   Rs. 5.00     Rs. 3,679.00     Rs. 5.00     Rs. 5.00     Rs. 2,814.00     Rs. 5.00  
Option life     2.5 Years       5.0 Years       2.5 Years       2.5 Years       5.0 Years       2.5 Years  
Risk-free interest rate     4.36 %     5.67 %     4.62 %     5.72 %     7.14 %     6.76 %
Expected dividends     0.49 %     0.68 %     0.68 %     0.72 %     0.71 %     0.71 %
Grant date share price   Rs. 5,099.00     Rs. 3,700.00     Rs. 3,700.00     Rs. 2,783.20     Rs. 2,801.00     Rs. 2,801.00  

 

  25  

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

19. Employee stock incentive plans (continued)

 

Share-based payment expense

 

    For the nine months
ended December 31,
    For the three months
ended December 31,
 
    2020     2019     2020     2019  
Equity settled share-based payment expense(1)   Rs. 455     Rs. 399     Rs. 151     Rs. 127  
Cash settled share-based payment expense(2)     152       66       29       28  
    Rs. 607     Rs. 465     Rs. 180     Rs. 155  

 

(1) As of December 31, 2020 and 2019, there was Rs.799 and Rs.675, respectively, of total unrecognized compensation cost related to unvested stock options. This cost is expected to be recognized over a weighted-average period of 2.03 years and 1.98 years, respectively.

 

(2) Certain of the Company’s employees are eligible to receive share based payment awards that are settled in cash. These awards would vest only upon satisfaction of certain service conditions which range from 1 to 4 years. These awards entitle the employees to a cash payment on the vesting date. The amount of the cash payment is determined based on the price of the Company’s ADSs at the time of vesting. As of December 31, 2020 and 2019, there was Rs.184 and Rs.129, respectively, of total unrecognized compensation cost related to unvested awards. This cost is expected to be recognized over a weighted-average period of 1.98 years and 2.02 years, respectively. This scheme does not involve dealing in or subscribing to or purchasing securities of the Company, directly or indirectly.

 

20. Related parties

 

The Company has entered into transactions with the following related parties:

 

· Green Park Hotel and Resorts Limited for hotel services;
· Green Park Hospitality Services Private Limited for catering and other services;
· Dr. Reddy’s Foundation towards contributions for social development;
· Kunshan Rotam Reddy Pharmaceuticals Company Limited for sales of goods and for research and development services;
· Pudami Educational Society towards contributions for social development;
· Indus Projects Private Limited for engineering services relating to civil works;
· CERG Advisory Private Limited for professional consulting services;
· Dr. Reddy’s Institute of Life Sciences for research and development services;
· AverQ Inc. for professional consulting services;
· Shravya Publications Pvt. Ltd. for professional consulting services;
· Samarjita Management Consultancy Private Limited for professional consulting services;
· Cancelled Plans LLP for the sale of scrap materials;
· Araku Originals Private Limited for the purchase of coffee powder;
· DRES Energy Private Limited for the purchase of solar power; and
· Stamlo Industries Limited for hotel services.

 

These are enterprises over which key management personnel have control or significant influence. “Key management personnel” consists of the Company’s Directors and members of the Company’s Management Council.

 

The Company has also entered into cancellable operating lease transactions with key management personnel and close members of their families.

 

Further, the Company contributes to the Dr. Reddy’s Laboratories Gratuity Fund, which maintains the plan assets of the Company’s Gratuity Plan for the benefit of its employees.

 

  26  

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

20. Related parties (continued)

 

The following is a summary of significant related party transactions:

 

    For the nine months
ended December 31,
    For the three months
ended December 31,
 
    2020     2019     2020     2019  
Research and development services received   Rs. 81     Rs. 97     Rs. 29     Rs. 19  
Sale of goods     22       11       1       -  
Lease rentals received     1       -       - *     -  
Research and development services provided     39       58       39       -  
Lease rentals paid     28       27       9       9  
Catering expenses paid     221       242       82       67  
Hotel expenses paid     6       18       2       7  
Facility management services paid     27       -       9       -  
Purchase of solar power     92       -       24       -  
Civil works     35       76       20       28  
Contributions towards social development     174       177       58       59  
Salaries to relatives of key management personnel     6       6       1       2  
Others     8       3       7       -  

 

* Rounded to the nearest million.

 

The Company had the following amounts due from related parties as at the following dates:

 

    As of  
    December 31, 2020     March 31, 2020  
Key management personnel and close members of their families   Rs. 8     Rs. 8  
Other related parties     69       68  

 

The Company had the following amounts due to related parties as at the following dates:

 

    As of  
    December 31, 2020     March 31, 2020  
Due to related parties   Rs. 23     Rs. 91  

 

The following table describes the components of compensation paid or payable to key management personnel for the services rendered during the applicable period:

 

    For the nine months
ended December 31,
    For the three months
ended December 31,
 
    2020     2019     2020     2019  
Salaries and other benefits   Rs. 579     Rs. 481     Rs. 204     Rs. 166  
Contributions to defined contribution plans     25       26       8       9  
Commission to directors     255       205       85       75  
Share-based payment expense     201       122       80       43  
    Rs. 1,060     Rs. 834     Rs. 377     Rs. 293  

 

Some of the key management personnel of the Company are also covered under the Company’s Gratuity Plan along with the other employees of the Company. Proportionate amounts of gratuity accrued under the Company’s Gratuity Plan have not been separately computed or included in the above disclosure.

 

  27  

 

 

DR. REDDY’S LABORATORIES LIMITED AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(in millions, except share and per share data and where otherwise stated)

 

21. Financial instruments

 

Financial instruments by category

 

The carrying value and fair value of financial instruments as at December 31, 2020 and March 31, 2020 were as follows:

 

    As of December 31, 2020     As of March 31, 2020  
    Total carrying
value
   

Total fair value

    Total carrying
value
    Total fair value  
Assets:                        
Cash and cash equivalents   Rs. 4,321     Rs. 4,321     Rs. 2,053     Rs. 2,053  
Other investments(1)     16,961       16,961       24,015       24,015  
Trade and other receivables     53,408       53,408       52,015       52,015  
Derivative financial instruments     1,907       1,907       1,105       1,105  
Other assets(2)     3,831       3,831       4,170       4,170  
Total   Rs. 80,428     Rs. 80,428     Rs. 83,358     Rs. 83,358  
Liabilities:                                
Trade and other payables   Rs. 23,072     Rs. 23,072     Rs. 16,659     Rs. 16,659  
Derivative financial instruments     917       917       1,602       1,602  
Long-term borrowings     7,333       7,333       5,570       5,570  
Short-term borrowings     13,110       13,110       16,441       16,441  
Bank overdraft     -       -