Indicate by check mark whether the registrant files or will
file annual reports under cover of Form 20-F or 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): ______
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): ______
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.
If “Yes” is marked, indicate below the file number
assigned to registrant in connection with Rule 12g3-2(b): 82-________.
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” are
to the legal currency of India, 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 “U.S.
FDA” are to the United States Food and Drug Administration, 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 IMS Health Inc. and its affiliates (“IMS Health”), 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.65.30, as published by Federal Reserve Board of Governors on September 29, 2017. 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.
Information contained
in our website, www.drreddys.com, is not part of this Quarterly Report and no portion of such information is incorporated herein.
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 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, THOSE DISCUSSED
IN THE SECTION TITLED “OPERATING AND FINANCIAL REVIEW, TREND INFORMATION” AND ELSEWHERE IN THIS REPORT. READERS ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH REFLECT OUR ANALYSIS ONLY AS OF THE DATE HEREOF.
IN ADDITION, READERS SHOULD CAREFULLY REVIEW THE INFORMATION IN OUR PERIODIC REPORTS AND OTHER DOCUMENTS FILED WITH AND/OR FURNISHED
TO THE SECURITIES AND EXCHANGE COMMISSION (“SEC”) FROM TIME TO TIME.
The accompanying notes form an integral
part of these unaudited condensed consolidated interim financial statements.
The accompanying notes form an integral
part of these unaudited condensed consolidated interim financial statements.
The accompanying notes form an integral
part of these unaudited condensed consolidated interim financial statements.
The accompanying notes
form an integral part of these unaudited condensed consolidated interim financial statements.
The accompanying notes form an integral
part of these unaudited condensed consolidated interim financial statements.
(1) Refer to Note 15 of these unaudited condensed consolidated
interim financial statements.
The accompanying notes form an integral
part of these unaudited condensed consolidated interim financial statements.
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 in Hyderabad, Telangana, India. Through its three businesses - Global
Generics, Pharmaceutical Services and Active Ingredients, 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 and Tennessee 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 also 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, 2017. These interim financial statements were authorized for issuance
by the Company’s Board of Directors on November 8, 2017.
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, 2017 contained in the Company’s Annual Report on Form
20-F.
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 statement of financial position:
|
|
·
|
derivative
financial instruments are measured at fair value;
|
|
|
·
|
available
for sale financial assets are measured at fair value;
|
|
|
·
|
employee
defined benefit assets/(liability) are recognized as the net total of the fair value of plan assets adjusted for actuarial losses
and gains and the present value of the defined benefit obligation;
|
|
|
·
|
long
term borrowings, except obligations under finance leases, are measured at amortized cost using the effective interest rate method;
and
|
|
|
·
|
investments
in joint ventures are accounted for using the equity method.
|
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 six months ended September 30, 2017 have been translated into U.S. dollars at the certified foreign exchange rate
of U.S.$1.00 = Rs.65.30, as published by the Federal Reserve Board of Governors on September 29, 2017. 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 auditors.
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)
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, excepting the change as mentioned below, 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, 2017.
g) Recent
accounting pronouncements
Standards issued but not
yet effective and not early adopted by the Company
IFRS 9, Financial instruments
In July 2014, the
IASB issued the final version of IFRS 9, “Financial instruments”. IFRS 9 significantly differs from IAS 39, “Financial
Instruments: Recognition and Measurement”, and includes a logical model for classification and measurement, a single, forward-looking
“expected loss” impairment model and a substantially-reformed approach to hedge accounting. IFRS 9 is effective for
annual periods beginning on or after January 1, 2018, with early application permitted. The new Standard will materially impact
the classification and measurement of the Company's financial instruments, documentation relating to hedging financial exposures
and recognition of certain fair value changes.
IFRS 15, Revenue from Contracts
with Customers.
In May 2014, the IASB
issued IFRS 15, “Revenue from Contracts with Customers”. This comprehensive new standard will supersede existing revenue
recognition guidance, and requires an entity to recognize revenue to depict the transfer of promised goods or services to customers
in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
The new standard also will result in enhanced disclosures about revenue, provide guidance for transactions that were not previously
addressed comprehensively (for example, service revenue and contract modifications) and improve guidance for multiple-element arrangements.
The new revenue recognition
standard was issued with an effective date of January 1, 2017. However, in April 2015, the IASB voted to defer the effective date
of the new revenue recognition standard to January 1, 2018. Early application of the new standard is permitted.
The Company intends to adopt IFRS 15 effective
April 1, 2018, using the modified retrospective approach.
The adoption of IFRS 15
is not expected to have a significant impact on the Company’s recognition of revenues from product sales and service
income. However, the Company continues to assess the impact of IFRS 15 on other revenue and income streams including, but not limited
to, revenue from collaborative arrangements, license fee and milestone revenues.
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) Recent
accounting pronouncements (continued)
IFRS 16,
Leases
In January 2016, the
IASB issued a new standard, IFRS 16, “Leases”. The new standard brings most leases on-balance sheet for lessees under
a single model, eliminating the distinction between operating and finance leases. Lessor accounting, however, remains largely unchanged
and the distinction between operating and finance leases is retained. IFRS 16 supersedes IAS 17, “Leases”, and related
interpretations and is effective for periods beginning on or after January 1, 2019. Earlier adoption of IFRS 16 is permitted if
IFRS 15, “Revenue from Contracts with Customers”, has also been applied.
The Company is currently
in the process of evaluating the impact of this new accounting standard on its consolidated financial statements.
IFRIC 22, Foreign Currency Transactions
and Advance Consideration
In December 2016,
the IASB issued IFRIC Interpretation 22, “Foreign Currency Transactions and Advance Consideration,” which addresses
the exchange rate to use in transactions that involve advance consideration paid or received in a foreign currency. IFRIC Interpretation
22 is effective for annual reporting periods beginning on or after January 1, 2018. Earlier application is permitted. The Company
is currently in the process of evaluating the impact of this change in the accounting standard on its consolidated financial statements.
IFRIC 23,
Uncertainty over Income Tax treatments
On June 7, 2017, the
IFRS Interpretations Committee issued IFRIC 23, which clarifies how the recognition and measurement requirements of IAS 12 “Income
taxes”, are applied where there is uncertainty over income tax treatments.
IFRIC 23 explains
how to recognize and measure deferred and current income tax assets and liabilities where there is uncertainty over a tax treatment.
An uncertain tax treatment is any tax treatment applied by an entity where there is uncertainty over whether that treatment will
be accepted by the applicable tax authority. For example, a decision to claim a deduction for a specific expense or not to include
a specific item of income in a tax return is an uncertain tax treatment if its acceptability is uncertain under applicable tax
law. The interpretation provides specific guidance in several areas where previously IAS 12 was silent. IFRIC 23 applies to all
aspects of income tax accounting where there is an uncertainty regarding the treatment of an item, including taxable profit or
loss, the tax bases of assets and liabilities, tax losses and credits and tax rates.
The interpretation
is effective for annual periods beginning on or after January 1, 2019. Earlier application is permitted. An entity can, on initial
application, elect to apply this interpretation either:
|
|
·
|
retrospectively applying IAS 8, if possible
without the use of hindsight; or
|
|
|
·
|
retrospectively, with the cumulative effect
of initially applying the interpretation recognized at the date of initial application as an adjustment to the opening balance
of retained earnings (or other component of equity, as appropriate).
|
The
Company is in the process of evaluating the impact of IFRIC 23 on the consolidated financial statements and the period of adoption.
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 Chief Executive Officer
is the CODM of the Company.
The Company’s
reportable operating segments are as follows:
|
|
·
|
Pharmaceutical
Services and Active Ingredients (“PSAI”); and
|
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 consists of the Company’s business of manufacturing and marketing active
pharmaceutical ingredients and intermediates, also known as “API” or bulk drugs, 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, development, and manufacture of differentiated
formulations. These products fall within the dermatology and neurology therapeutic areas and are marketed and sold through Promius®
Pharma, LLC.
Others.
This
includes the operations of the Company’s wholly-owned subsidiary, Aurigene Discovery Technologies Limited, a discovery stage
biotechnology company developing novel and best-in-class therapies in the fields of oncology and inflammation and which works with
established pharmaceutical and biotechnology companies in early-stage collaborations, bringing drug candidates from hit generation
to pre-clinical development.
The measurement of each
segment’s revenues and expenses is consistent with the accounting policies that are used in preparation of the Company’s
consolidated financial statements.
|
Information about segments:
|
|
For the six months ended September 30, 2017
|
|
|
Segments
|
|
Global
Generics
|
|
|
PSAI
|
|
|
Proprietary
Products
|
|
|
Others
|
|
|
Total
|
|
|
Revenues
(1)
|
|
Rs.
|
56,073
|
|
|
Rs.
|
10,305
|
|
|
Rs.
|
1,260
|
|
|
Rs.
|
981
|
|
|
Rs.
|
68,619
|
|
|
Gross profit
|
|
Rs.
|
32,772
|
|
|
Rs.
|
1,640
|
|
|
Rs.
|
1,051
|
|
|
Rs.
|
535
|
|
|
Rs.
|
35,998
|
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
22,795
|
|
|
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,250
|
|
|
Other (income)/expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(308
|
)
|
|
Results from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
4,261
|
|
|
Finance (expense)/income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
197
|
|
|
Share of profit of equity accounted investees, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
190
|
|
|
Profit before tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
4,648
|
|
|
Tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,208
|
|
|
Profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
3,440
|
|
|
|
(1)
|
Revenues for the six months ended September 30, 2017 do not include inter-segment revenues from
the PSAI segment to the Global Generics segment, which are accounted for at a cost of Rs.2,695.
|
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 six months ended September 30, 2016
|
|
|
Segments
|
|
Global
Generics
|
|
|
PSAI
|
|
|
Proprietary
Products
|
|
|
Others
|
|
|
Total
|
|
|
Revenues
(1)
|
|
Rs.
|
55,633
|
|
|
Rs.
|
10,477
|
|
|
Rs.
|
1,208
|
|
|
Rs.
|
884
|
|
|
Rs.
|
68,202
|
|
|
Gross profit
|
|
Rs.
|
34,406
|
|
|
Rs.
|
2,402
|
|
|
Rs.
|
1,032
|
|
|
Rs.
|
435
|
|
|
Rs.
|
38,275
|
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,058
|
|
|
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,016
|
|
|
Other (income)/expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(373
|
)
|
|
Results from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
4,574
|
|
|
Finance (expense)/income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
810
|
|
|
Share of profit of equity accounted investees, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158
|
|
|
Profit before tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
5,542
|
|
|
Tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,329
|
|
|
Profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
4,213
|
|
|
|
(1)
|
Revenues for the six months ended September 30, 2016 do
not include inter-segment revenues from the PSAI segment to the Global Generics segment, which are accounted for at a cost of
Rs.3,216.
|
|
Information about segments:
|
|
For the three months ended September 30, 2017
|
|
|
Segments
|
|
Global
Generics
|
|
|
PSAI
|
|
|
Proprietary
Products
|
|
|
Others
|
|
|
Total
|
|
|
Revenues
(1)
|
|
Rs.
|
28,618
|
|
|
Rs.
|
5,654
|
|
|
Rs.
|
748
|
|
|
Rs.
|
440
|
|
|
Rs.
|
35,460
|
|
|
Gross profit
|
|
Rs.
|
16,936
|
|
|
Rs.
|
1,107
|
|
|
Rs.
|
633
|
|
|
Rs.
|
225
|
|
|
Rs.
|
18,901
|
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,032
|
|
|
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,175
|
|
|
Other (income)/expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(114
|
)
|
|
Results from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
3,808
|
|
|
Finance (expense)/income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24
|
)
|
|
Share of profit of equity accounted investees, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
92
|
|
|
Profit before tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
3,876
|
|
|
Tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,027
|
|
|
Profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
2,849
|
|
|
|
(1)
|
Revenues for the three months ended September 30, 2017
do not include inter-segment revenues from the PSAI segment to the Global Generics segment, which are accounted for at a cost
of Rs.1,456.
|
|
Information about segments:
|
|
For the three months ended September 30, 2016
|
|
|
Segments
|
|
Global
Generics
|
|
|
PSAI
|
|
|
Proprietary
Products
|
|
|
Others
|
|
|
Total
|
|
|
Revenues
(1)
|
|
Rs.
|
28,995
|
|
|
Rs.
|
5,784
|
|
|
Rs.
|
588
|
|
|
Rs.
|
490
|
|
|
Rs.
|
35,857
|
|
|
Gross profit
|
|
Rs.
|
18,067
|
|
|
Rs.
|
1,271
|
|
|
Rs.
|
507
|
|
|
Rs.
|
252
|
|
|
Rs.
|
20,097
|
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,774
|
|
|
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,214
|
|
|
Other (income)/expense, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(277
|
)
|
|
Results from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
3,386
|
|
|
Finance (expense)/income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
365
|
|
|
Share of profit of equity accounted investees, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84
|
|
|
Profit before tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
3,835
|
|
|
Tax expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
885
|
|
|
Profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
2,950
|
|
|
|
(1)
|
Revenues for the three months ended September 30, 2016
do not include inter-segment revenues from the PSAI segment to the Global Generics segment, which are accounted for at a cost
of Rs.1,654.
|
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 six months ended September 30,
|
|
|
For the three months ended September 30,
|
|
|
Country
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
India
|
|
Rs.
|
12,881
|
|
|
Rs.
|
12,443
|
|
|
Rs.
|
6,806
|
|
|
Rs.
|
6,844
|
|
|
United States
|
|
|
32,492
|
|
|
|
34,698
|
|
|
|
16,191
|
|
|
|
17,876
|
|
|
Russia
|
|
|
6,679
|
|
|
|
5,025
|
|
|
|
3,218
|
|
|
|
2,689
|
|
|
Others
|
|
|
16,567
|
|
|
|
16,036
|
|
|
|
9,245
|
|
|
|
8,448
|
|
|
|
|
Rs.
|
68,619
|
|
|
Rs.
|
68,202
|
|
|
Rs.
|
35,460
|
|
|
Rs.
|
35,857
|
|
4. Cash and cash equivalents
Cash and cash equivalents consist of the following:
|
|
|
As of
|
|
|
|
|
September 30, 2017
|
|
|
March 31, 2017
|
|
|
Cash balances
|
|
Rs.
|
2
|
|
|
Rs.
|
3
|
|
|
Balances with banks
|
|
|
1,635
|
|
|
|
1,131
|
|
|
Term deposits with banks (original maturities up to 3 months)
|
|
|
823
|
|
|
|
2,732
|
|
|
Cash and cash equivalents in the statement of financial position
|
|
|
2,460
|
|
|
|
3,866
|
|
|
Bank overdrafts used for cash management purposes
|
|
|
60
|
|
|
|
87
|
|
|
Cash and cash equivalents in the statement of cash flow
|
|
Rs.
|
2,400
|
|
|
Rs.
|
3,779
|
|
Cash and cash equivalents
included restricted cash of Rs.787 and Rs.177, respectively, as of September 30, 2017 and March 31, 2017, which consisted
of:
|
|
·
|
Rs.76
as of September 30, 2017 and Rs.64 as of March 31, 2017, representing amounts in the Company’s unclaimed dividend and debenture
interest accounts;
|
|
|
·
|
Rs.676
as of September 30, 2017 and Rs.0 as of March 31, 2017, representing a bank guarantee furnished to the Registrar General, Delhi
High Court pursuant to an order by the Delhi High Court in relation to the Cardiovascular and Anti-diabetic formulations litigation
(refer to Note 21 of these interim financial statements for further details);
|
|
|
·
|
Rs.5
as of September 30, 2017 and Rs.38 as of March 31, 2017, representing cash and cash equivalents of the Company’s subsidiary
in Venezuela, which are subject to foreign exchange controls (refer to Note 26 of these interim financial statements for further
details);
|
|
|
·
|
Rs.0
as of September 30, 2017 and Rs.49 as of March 31, 2017, representing the portion of the purchase consideration deposited in an
escrow account, pursuant to an acquisition of an intangible asset; and
|
|
|
·
|
Rs.30
as of September 30, 2017 and Rs.26 as of March 31, 2017, representing other restricted cash amounts.
|
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
Other investments consist
of investments in units of mutual funds, equity securities and term deposits (i.e., certificates of deposit having an original
maturity period exceeding 3 months) with banks. The details of such investments as of September 30, 2017 were as follows:
|
|
|
Cost
|
|
|
Gain/(loss)
recognized
directly in equity
|
|
|
Fair value
|
|
|
Investment in units of mutual funds
|
|
Rs.
|
12,140
|
|
|
Rs.
|
1,496
|
|
|
Rs.
|
13,636
|
|
|
Investment in equity securities
(1)
|
|
|
2,703
|
|
|
|
(13
|
)
|
|
|
2,690
|
|
|
Term deposits with banks
|
|
|
981
|
|
|
|
-
|
|
|
|
981
|
|
|
|
|
Rs.
|
15,824
|
|
|
Rs.
|
1,483
|
|
|
Rs.
|
17,307
|
|
|
Current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in units of mutual funds
|
|
Rs.
|
11,927
|
|
|
Rs.
|
1,438
|
|
|
Rs.
|
13,365
|
|
|
Term deposits with banks
|
|
|
968
|
|
|
|
-
|
|
|
|
968
|
|
|
|
|
Rs.
|
12,895
|
|
|
Rs.
|
1,438
|
|
|
Rs.
|
14,333
|
|
|
Non-current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in units of mutual funds
|
|
Rs.
|
213
|
|
|
Rs.
|
58
|
|
|
Rs.
|
271
|
|
|
Investment in equity securities
(1)
|
|
|
2,703
|
|
|
|
(13
|
)
|
|
|
2,690
|
|
|
Term deposits with banks
|
|
|
13
|
|
|
|
-
|
|
|
|
13
|
|
|
|
|
Rs.
|
2,929
|
|
|
Rs.
|
45
|
|
|
Rs.
|
2,974
|
|
|
|
(1)
|
Primarily represents the shares of Curis, Inc. Refer to
Note 22 of these interim financial statements for further details.
|
As of March 31, 2017,
the details of such investments were as follows:
|
|
|
Cost
|
|
|
Gain/(loss)
recognized
directly in equity
|
|
|
Fair value
|
|
|
Investment in units of mutual funds
|
|
Rs.
|
9,677
|
|
|
Rs.
|
1,464
|
|
|
Rs.
|
11,141
|
|
|
Investment in equity securities
(1)
|
|
|
2,703
|
|
|
|
2,260
|
|
|
|
4,963
|
|
|
Term deposits with banks
|
|
|
3,403
|
|
|
|
-
|
|
|
|
3,403
|
|
|
|
|
Rs.
|
15,783
|
|
|
Rs.
|
3,724
|
|
|
Rs.
|
19,507
|
|
|
Current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in units of mutual funds
|
|
Rs.
|
9,464
|
|
|
Rs.
|
1,417
|
|
|
Rs.
|
10,881
|
|
|
Term deposits with banks
|
|
|
3,389
|
|
|
|
-
|
|
|
|
3,389
|
|
|
|
|
Rs.
|
12,853
|
|
|
Rs.
|
1,417
|
|
|
Rs.
|
14,270
|
|
|
Non-current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in units of mutual funds
|
|
Rs.
|
213
|
|
|
Rs.
|
47
|
|
|
Rs.
|
260
|
|
|
Investment in equity securities
(1)
|
|
|
2,703
|
|
|
|
2,260
|
|
|
|
4,963
|
|
|
Term deposits with banks
|
|
|
14
|
|
|
|
-
|
|
|
|
14
|
|
|
|
|
Rs.
|
2,930
|
|
|
Rs.
|
2,307
|
|
|
Rs.
|
5,237
|
|
(1)
Primarily represents the
shares of Curis, Inc. Refer to Note 22 of these interim financial statements for further details.
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)
6. Inventories
Inventories consist of the following:
|
|
|
As of
|
|
|
|
|
September 30, 2017
|
|
|
March 31, 2017
|
|
|
Raw materials
|
|
Rs.
|
6,845
|
|
|
Rs.
|
7,226
|
|
|
Packing materials, stores and spares
|
|
|
2,393
|
|
|
|
2,315
|
|
|
Work-in-progress
|
|
|
6,866
|
|
|
|
6,614
|
|
|
Finished goods
|
|
|
10,894
|
|
|
|
12,374
|
|
|
|
|
Rs.
|
26,998
|
|
|
Rs.
|
28,529
|
|
Details of inventories recognized
in consolidated income statement
|
|
|
For the six months ended
September 30,
|
|
|
For the three months ended
September 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
Raw materials, consumables and changes in finished goods and work in progress
|
|
Rs.
|
14,889
|
|
|
Rs.
|
12,629
|
|
|
Rs.
|
7,859
|
|
|
Rs.
|
6,691
|
|
|
Inventory write-downs
|
|
|
1,586
|
|
|
|
1,481
|
|
|
|
868
|
|
|
|
818
|
|
7. Hedges of foreign currency exchange
rate risks
The Company is exposed
to exchange rate risk that arises from its foreign exchange revenues and expenses, primarily in U.S. dollars, U.K. pounds sterling,
Russian roubles, Romanian new leus and Euros, and foreign currency debt in U.S. dollars, Russian roubles, Ukrainian hryvnias and
Euros. The Company uses forward contracts, option contracts and currency swap contracts (collectively, “derivatives”)
to mitigate its risk of changes in foreign currency exchange rates. The Company also uses non-derivative financial instruments
as part of its foreign currency exposure risk mitigation strategy.
In respect of all
of its foreign exchange derivative contracts, the Company has recorded, as part of finance costs, a net loss of Rs.189 and
Rs.107 for the three months and six months ended September 30, 2017, respectively (as compared to a net gain of Rs.93 and
a net loss of Rs.4 for the three months and six months ended September 30, 2016, respectively).
Hedges of highly probable forecast transactions
|
|
·
|
The Company classifies its derivative
contracts that hedge foreign exchange risk associated with its highly probable forecast transactions as cash flow hedges and measures
them at fair value. The effective portion of such cash flow hedges is recorded as a component of equity within the Company’s
“hedging reserve”, and re-classified to the consolidated income statement as revenue in the period corresponding to
the occurrence of the forecast transactions. The ineffective portion of such cash flow hedges is immediately recorded in the consolidated
income statement as a finance cost.
|
|
|
·
|
The Company also designates certain non-derivative
financial liabilities, such as foreign currency borrowings from banks, as hedging instruments for the hedge of foreign exchange
risk associated with highly probable forecast transactions and, accordingly, applies cash flow hedge accounting for such relationships.
Re-measurement gain/loss on such non-derivative financial liabilities is recorded as a component of equity within the Company’s
“hedging reserve”, and re-classified to the consolidated income statement as revenue in the period corresponding to
the occurrence of the forecast transactions.
|
|
|
·
|
In respect of the aforesaid hedges of highly probable forecasted transactions, the Company recorded,
as a component of equity, a net loss of Rs.140 and Rs.30 for the three months and six months ended September 30, 2017, respectively
(as compared to a net gain of Rs.512 and Rs.869 for the three months and six months ended September 30, 2016, respectively).
|
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. Hedges of foreign currency exchange
rate risks (continued)
Hedges of highly probable forecast transactions (continued)
|
|
·
|
The Company also recorded, as a component of revenue, a net gain of Rs.188 and Rs.321 for the three
months and six months ended September 30, 2017, respectively (as compared to a net loss of Rs.345 and Rs.792 for the three months
and six months ended September 30, 2016, respectively).
|
|
|
·
|
The net carrying amount of the Company’s
“hedging reserve” as a component of equity before adjusting for tax impact was a gain of Rs.99 as at September 30,
2017, as compared to a gain of Rs.129 as at March 31, 2017.
|
Hedges of recognized assets and liabilities
Changes in the fair
value of forward contracts and option contracts that economically hedge monetary assets and liabilities in foreign currencies,
and for which no hedge accounting is applied, are recognized in the consolidated income statement. The changes in fair value of
such forward contracts and option contracts, as well as the foreign exchange gains and losses relating to the monetary items, are
recognized in the consolidated income statement as part of “finance (expense)/income, net”.
Hedges of changes in the interest rates
Consistent with the
Company’s risk management policy, interest rate swaps are used to mitigate the risk of changes in interest rates. These instruments
are not used for trading or speculative purposes.
8. Financial instruments
Non-derivative financial instruments
Non-derivative financial
instruments consist of investments in mutual funds, equity and debt securities, trade receivables, cash and cash equivalents, loans
and borrowings, and trade payables.
Derivative financial instruments
The Company uses derivative
contracts to mitigate its risk of changes in foreign currency exchange rates. The Company uses interest rate swaps (including cross
currency interest rate swaps) to mitigate the risk of changes in interest rates.
Financial instruments by category
The carrying value and fair value of financial
instruments by each category as at September 30, 2017 were as follows:
|
|
|
Note
|
|
Loans
and
receivables
|
|
|
Available
for
sale
|
|
|
Other
financial
liabilities
|
|
|
Derivative
financial
instruments
|
|
|
Total
carrying
value
|
|
|
Total
fair
value
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
4
|
|
Rs.
|
2,460
|
|
|
Rs.
|
-
|
|
|
Rs.
|
-
|
|
|
Rs.
|
-
|
|
|
Rs.
|
2,460
|
|
|
Rs.
|
2,460
|
|
|
Other investments
|
|
5
|
|
|
981
|
|
|
|
16,326
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17,307
|
|
|
|
17,307
|
|
|
Trade and other receivables
|
|
|
|
|
42,420
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
42,420
|
|
|
|
42,420
|
|
|
Derivative financial instruments
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
171
|
|
|
|
171
|
|
|
|
171
|
|
|
Other assets
(1)
|
|
|
|
|
1,668
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,668
|
|
|
|
1,668
|
|
|
Total
|
|
|
|
Rs.
|
47,529
|
|
|
Rs.
|
16,326
|
|
|
Rs.
|
-
|
|
|
Rs.
|
171
|
|
|
Rs.
|
64,026
|
|
|
Rs.
|
64,026
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables
|
|
|
|
Rs.
|
-
|
|
|
Rs.
|
-
|
|
|
Rs.
|
14,193
|
|
|
Rs.
|
-
|
|
|
Rs.
|
14,193
|
|
|
Rs.
|
14,193
|
|
|
Derivative financial instruments
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
157
|
|
|
|
157
|
|
|
|
157
|
|
|
Long-term borrowings
|
|
12
|
|
|
-
|
|
|
|
-
|
|
|
|
25,161
|
|
|
|
-
|
|
|
|
25,161
|
|
|
|
25,161
|
|
|
Short-term
borrowings
|
|
12
|
|
|
-
|
|
|
|
-
|
|
|
|
28,579
|
|
|
|
-
|
|
|
|
28,579
|
|
|
|
28,579
|
|
|
Bank
overdraft
|
|
4
|
|
|
-
|
|
|
|
-
|
|
|
|
60
|
|
|
|
-
|
|
|
|
60
|
|
|
|
60
|
|
|
Other liabilities and provisions
(2)
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,424
|
|
|
|
-
|
|
|
|
20,424
|
|
|
|
20,424
|
|
|
Total
|
|
|
|
Rs.
|
-
|
|
|
Rs.
|
-
|
|
|
Rs.
|
88,417
|
|
|
Rs.
|
157
|
|
|
Rs.
|
88,574
|
|
|
Rs.
|
88,574
|
|
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)
8. Financial instruments (continued)
The carrying value and fair value of financial instruments
by each category as at March 31, 2017 were as follows:
|
|
|
Note
|
|
Loans
and
receivables
|
|
|
Available
for
sale
|
|
|
Other
financial
liabilities
|
|
|
Derivative
financial
instruments
|
|
|
Total
carrying
value
|
|
|
Total
fair
value
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
4
|
|
Rs.
|
3,866
|
|
|
Rs.
|
-
|
|
|
Rs.
|
-
|
|
|
Rs.
|
-
|
|
|
Rs.
|
3,866
|
|
|
Rs.
|
3,866
|
|
|
Other investments
|
|
5
|
|
|
3,403
|
|
|
|
16,104
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,507
|
|
|
|
19,507
|
|
|
Trade and other receivables
|
|
|
|
|
38,271
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
38,271
|
|
|
|
38,271
|
|
|
Derivative financial instruments
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
262
|
|
|
|
262
|
|
|
|
262
|
|
|
Other assets
(1)
|
|
|
|
|
1,916
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,916
|
|
|
|
1,916
|
|
|
Total
|
|
|
|
Rs.
|
47,456
|
|
|
Rs.
|
16,104
|
|
|
Rs.
|
-
|
|
|
Rs.
|
262
|
|
|
Rs.
|
63,822
|
|
|
Rs.
|
63,822
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables
|
|
|
|
Rs.
|
-
|
|
|
Rs.
|
-
|
|
|
Rs.
|
13,417
|
|
|
Rs.
|
-
|
|
|
Rs.
|
13,417
|
|
|
Rs.
|
13,417
|
|
|
Derivative financial instruments
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10
|
|
|
|
10
|
|
|
|
10
|
|
|
Long-term borrowings
|
|
12
|
|
|
-
|
|
|
|
-
|
|
|
|
5,571
|
|
|
|
-
|
|
|
|
5,571
|
|
|
|
5,571
|
|
|
Short-term
borrowings
|
|
12
|
|
|
-
|
|
|
|
-
|
|
|
|
43,539
|
|
|
|
-
|
|
|
|
43,539
|
|
|
|
43,539
|
|
|
Bank
overdraft
|
|
4
|
|
|
-
|
|
|
|
-
|
|
|
|
87
|
|
|
|
-
|
|
|
|
87
|
|
|
|
87
|
|
|
Other liabilities and provisions
(2)
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,391
|
|
|
|
-
|
|
|
|
20,391
|
|
|
|
20,391
|
|
|
Total
|
|
|
|
Rs.
|
-
|
|
|
Rs.
|
-
|
|
|
Rs.
|
83,005
|
|
|
Rs.
|
10
|
|
|
Rs.
|
83,015
|
|
|
Rs.
|
83,015
|
|
|
|
(1)
|
Other assets that are not financial assets (such as receivables
from statutory authorities, export benefit receivables, prepaid expenses, advances paid and certain other receivables) of Rs.16,227
and Rs.14,450 as of September 30, 2017 and March 31, 2017, respectively, are not included.
|
|
|
(2)
|
Other liabilities that are not financial liabilities (such
as statutory dues payable, deferred revenue, advances from customers and certain other accruals) of Rs.10,920 and Rs.11,570 as
of September 30, 2017 and March 31, 2017, respectively, are not included.
|
Fair value hierarchy
Level 1 - Quoted prices (unadjusted) in
active markets for identical assets or liabilities.
Level 2 - Inputs other than quoted prices
included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e.,
derived from prices).
Level 3 - Inputs for the assets or liabilities
that are not based on observable market data (unobservable inputs).
The following table
presents the fair value hierarchy of assets and liabilities measured at fair value on a recurring basis as of September 30, 2017:
|
Particulars
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Available for sale - Financial asset - Investments in units of mutual funds
|
|
Rs.
|
13,636
|
|
|
Rs.
|
-
|
|
|
Rs.
|
-
|
|
|
Rs.
|
13,636
|
|
|
Available for sale - Financial asset - Investment in equity securities
|
|
|
2,690
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,690
|
|
|
Derivative financial instruments - net gain/(loss) on outstanding foreign exchange forward, option and swap contracts and interest rate swap contracts
(1)
|
|
|
-
|
|
|
|
14
|
|
|
|
-
|
|
|
|
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)
8. Financial instruments (continued)
The following table
presents the fair value hierarchy of assets and liabilities measured at fair value on a recurring basis as of March 31, 2017:
|
Particulars
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Available for sale - Financial asset - Investments in units of mutual funds
|
|
Rs.
|
11,141
|
|
|
Rs.
|
-
|
|
|
Rs.
|
-
|
|
|
Rs.
|
11,141
|
|
|
Available for sale - Financial asset - Investment in equity securities
|
|
|
4,962
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,962
|
|
|
Derivative financial instruments – net gain/(loss) on outstanding foreign exchange forward, option and swap contracts and interest rate swap contracts
(1)
|
|
|
-
|
|
|
|
252
|
|
|
|
-
|
|
|
|
252
|
|
(1)
The Company enters into
derivative contracts with various counterparties, principally financial institutions and banks. Derivatives valued using valuation
techniques with market observable inputs are mainly interest rate swaps, foreign exchange forward option and swap contracts. The
most frequently applied valuation techniques include forward pricing, swap models and Black-Scholes-Merton models (for option valuation),
using present value calculations.
The models incorporate
various inputs including foreign exchange spot and forward rates, interest rate curves and forward rate curves. As at September
30, 2017 and March 31, 2017, the changes in counterparty credit risk had no material effect on the hedge effectiveness assessment
for derivatives designated in hedge relationships and other financial instruments recognized at fair value.
9. Property, plant and equipment
Acquisitions and disposals
|
|
|
For the six months ended
September 30, 2017
|
|
|
For the six months ended
September 30, 2016
|
|
|
For the year ended
March 31, 2017
|
|
|
Cost of assets acquired during the period
|
|
Rs.
|
4,709
|
|
|
Rs.
|
5,956
|
|
|
Rs.
|
11,622
|
|
|
Net book value of assets disposed of during the period
|
|
|
48
|
|
|
|
33
|
|
|
|
62
|
|
|
Loss/(gain) on disposal during the period
|
|
|
(2
|
)
|
|
|
6
|
|
|
|
80
|
|
Depreciation expense
|
|
|
For the six months ended
September 30,
|
|
|
For the three months ended
September 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
Cost of revenues
|
|
Rs.
|
3,159
|
|
|
Rs.
|
2,781
|
|
|
Rs.
|
1,606
|
|
|
Rs.
|
1,443
|
|
|
Selling, general and administrative expenses
|
|
|
383
|
|
|
|
362
|
|
|
|
190
|
|
|
|
190
|
|
|
Research and development expenses
|
|
|
544
|
|
|
|
514
|
|
|
|
282
|
|
|
|
264
|
|
|
|
|
Rs.
|
4,086
|
|
|
Rs.
|
3,657
|
|
|
|
2,078
|
|
|
Rs.
|
1,897
|
|
Capital commitments
As of September 30,
2017 and March 31, 2017, the Company was committed to spend Rs.4,322 and Rs.5,256, respectively, under agreements to purchase property,
plant and equipment. This amount is net of capital advances paid in respect of such purchase commitments.
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. Goodwill
Goodwill arising on
business combinations is not amortized but 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 the changes in goodwill during the six months ended September 30, 2017 and the year ended March 31, 2017:
|
|
|
As of
|
|
|
|
|
September 30, 2017
|
|
|
March 31, 2017
|
|
|
Opening balance, gross
(1)
|
|
Rs.
|
20,026
|
|
|
Rs.
|
20,122
|
|
|
Goodwill arising on business combinations during the period
(2)
|
|
|
-
|
|
|
|
10
|
|
|
Effect of translation adjustments
|
|
|
131
|
|
|
|
(106
|
)
|
|
Impairment loss
(3)
|
|
|
(16,274
|
)
|
|
|
(16,274
|
)
|
|
Closing balance
(1)
|
|
Rs.
|
3,883
|
|
|
Rs.
|
3,752
|
|
|
|
(1)
|
This does not include goodwill arising upon investment in an associate of Rs.181, which is included
in the carrying value of the investment in equity accounted investees.
|
|
|
(2)
|
Rs.10 as of March 31, 2017 represents goodwill arising from the acquisition of Imperial Credit
Private Limited.
|
|
|
(3)
|
The impairment loss of Rs.16,274 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 during
the years ended March 31, 2009 and 2010.
|
11. Other intangible assets
During the three months
and six months ended September 30, 2017, the Company acquired intangible assets at an aggregate cost of Rs.1,384 and Rs.1,935,
respectively (as compared to a cost of Rs.23,757 and Rs.28,312 for the three months and six months ended September 30, 2016, respectively
and Rs.29,205 for the year ended March 31, 2017).
Additions to intangible
assets during the six months ended September 30, 2016 include:
|
|
·
|
Rs.23,366 (U.S.$350), representing the
consideration paid to Teva Pharmaceutical Industries Limited (“Teva”) to acquire eight Abbreviated New Drug Applications
(“ANDAs”) in the United States forming part of the Company’s Global Generics segment (refer to Note 27 of these
interim financial statements for further details);
|
|
|
·
|
Rs.3,159 (U.S.$47.5), representing the
consideration for the acquisition from XenoPort, Inc. of exclusive U.S. rights for the development and commercialization of a clinical
stage oral new chemical entity which forms a part of the Company’s Proprietary Products segment (refer to Note 27 of these
interim financial statements for further details); and
|
|
|
·
|
Rs.1,148 (U.S.$17), representing the consideration
for the purchase of over-the-counter (“OTC”) brands from Ducere Pharma LLC which form a part of the Company’s
Global Generics segment (refer to Note 27 of these interim financial statements for further details).
|
Amortization of other intangible assets
|
|
|
For the six months
ended September 30,
|
|
|
For the three months
ended September 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
Selling, general and administrative expenses
|
|
Rs.
|
1,458
|
|
|
Rs.
|
1,619
|
|
|
Rs.
|
760
|
|
|
Rs.
|
815
|
|
|
Cost of revenues
|
|
|
130
|
|
|
|
151
|
|
|
|
70
|
|
|
|
76
|
|
|
Research and development expenses
|
|
|
66
|
|
|
|
101
|
|
|
|
33
|
|
|
|
59
|
|
|
|
|
Rs.
|
1,654
|
|
|
Rs.
|
1,871
|
|
|
Rs.
|
863
|
|
|
Rs.
|
950
|
|
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. Loans and borrowings
Short-term borrowings
The Company had net
short-term borrowings of Rs.28,579 as of September 30, 2017, as compared to Rs.43,539 as of March 31, 2017. The borrowings
primarily consist of “packing credit” loans drawn by the parent company and other unsecured loans drawn by certain
of its subsidiaries in Switzerland, Germany, the United States, Russia and Ukraine.
Short-term borrowings
consist of the following:
|
|
|
As at
|
|
|
|
|
September 30, 2017
|
|
|
March 31, 2017
|
|
|
Packing credit borrowings
|
|
Rs.
|
22,822
|
|
|
Rs.
|
18,699
|
|
|
Other foreign currency borrowings
|
|
|
5,757
|
|
|
|
24,840
|
|
|
|
|
Rs.
|
28,579
|
|
|
Rs.
|
43,539
|
|
The interest rate
profile of short-term borrowings from banks is given below:
|
|
|
As at
|
|
|
|
September 30, 2017
|
|
|
March 31, 2017
|
|
|
|
|
Currency
(1)
|
|
Interest Rate
|
|
|
Currency
|
|
Interest Rate
|
|
|
Packing credit borrowings
|
|
USD
|
|
|
LIBOR + (30) to 0 bps
|
|
|
USD
|
|
|
LIBOR + (30) to 1 bps
|
|
|
|
|
-
|
|
|
-
|
|
|
USD
|
|
|
0.01%
|
|
|
|
|
INR
|
|
|
T-Bill + 30bps
|
|
|
INR
|
|
|
T-Bill + 30bps
|
|
|
|
|
INR
|
|
|
6.00%
|
|
|
INR
|
|
|
6.92% to 6.95%
|
|
|
|
|
RUB
|
|
|
9.50%
|
|
|
RUB
|
|
|
9.95%
|
|
|
Other foreign currency borrowings
|
|
USD
|
|
|
LIBOR + 75 to 85 bps
|
|
|
USD
|
|
|
LIBOR + 40 to 60 bps
|
|
|
|
|
RUB
|
|
|
9.43%
|
|
|
RUB
|
|
|
10.48%
|
|
|
|
|
UAH
|
|
|
11.70% to 14.00%
|
|
|
-
|
|
|
-
|
|
(1) “INR”
means Indian rupees, “RUB” means Russian roubles, and “UAH” means Ukrainian hryvnia.
Short-term borrowing by Dr. Reddy’s Laboratories, SA
During the three months
ended September 30, 2016, Dr. Reddy’s Laboratories, SA, one of the Company’s subsidiaries in Switzerland (the “Swiss
Subsidiary”), borrowed U.S.$350 from certain institutional lenders at interest rates ranging from Libor plus 0.45% to 0.60%
per annum. The borrowing was solely for the purpose of acquiring eight ANDAs from Teva in the United States (refer to Note 27 of
these interim financial statements for additional details). The entire short-term borrowing of U.S.$350 was repaid during the three
months ended June 30, 2017.
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. Loans and borrowings (continued)
Long-term borrowings
Long-term borrowings,
measured at amortized cost, consist of the following:
|
|
|
As at
|
|
|
|
|
September 30, 2017
|
|
|
March 31, 2017
|
|
|
Foreign currency borrowing by the parent company
|
|
Rs.
|
4,887
|
|
|
Rs.
|
4,852
|
|
|
Foreign currency borrowing by the Swiss Subsidiary
|
|
|
16,198
|
|
|
|
-
|
|
|
Foreign currency borrowing by the Company’s German subsidiary Reddy Holding GmbH
|
|
|
3,239
|
|
|
|
-
|
|
|
Obligations under finance leases
|
|
|
704
|
|
|
|
707
|
|
|
|
|
Rs.
|
25,028
|
|
|
Rs.
|
5,559
|
|
|
Current portion
|
|
|
|
|
|
|
|
|
|
Obligations under finance leases
|
|
Rs.
|
76
|
|
|
Rs.
|
110
|
|
|
|
|
Rs.
|
76
|
|
|
Rs.
|
110
|
|
|
Non-current portion
|
|
|
|
|
|
|
|
|
|
Foreign currency borrowing by the parent company
|
|
Rs.
|
4,887
|
|
|
Rs.
|
4,852
|
|
|
Foreign currency borrowing by the Swiss Subsidiary
|
|
|
16,198
|
|
|
|
-
|
|
|
Foreign currency borrowing by the Company’s German subsidiary Reddy Holding GmbH
|
|
|
3,239
|
|
|
|
-
|
|
|
Obligations under finance leases
|
|
|
628
|
|
|
|
597
|
|
|
|
|
Rs.
|
24,952
|
|
|
Rs.
|
5,449
|
|
Long-term bank loan of the parent company
During
the year ended March 31, 2014, the Company borrowed the sum of U.S.$150. The Company was required to repay the loan in five equal
quarterly installments commencing at the end of the 54
th
month and continuing until the end of the 66
th
month
from August 12, 2013. During the three months ended December 31, 2016, the Company entered into a financing arrangement with certain
financial institutions to refinance the aforementioned borrowing of U.S.$150.
The
Company repaid U.S.$75 of this loan on November 28, 2016, and is required to repay the U.S.$75 balance of the loan in 3 equal installments
at the end of the 40
th
month, 43
rd
month and 46
th
month after the date the loan was made.
Long-term bank loan of subsidiary companies
During the three months
ended June 30, 2017, the Company entered into a refinancing arrangement with certain financial institutions relating to the short-term
borrowing of U.S.$350 in the Swiss Subsidiary. Pursuant to such arrangement, the Company repaid the short-term borrowing of U.S.$350
and incurred long-term borrowings of U.S.$250 in the Swiss Subsidiary and EUR 42 in the Company’s German subsidiary, Reddy
Holding GmbH. The aforesaid loans are repayable over a 36 month period commencing at the end of the 24
th
month and continuing
through the 60
th
month following the date of the loan agreement.
All
of the foregoing loan agreements impose various financial covenants on the Company. As of September 30, 2017, the Company was in
compliance with all such financial covenants.
The interest rate
profiles of long-term borrowings (other than obligations under finance leases) as at September 30, 2017 and March 31, 2017 were
as follows:
|
|
|
As at
|
|
|
|
September 30, 2017
|
|
|
March 31, 2017
|
|
|
|
|
Currency
|
|
Interest Rate
|
|
|
Currency
|
|
Interest Rate
|
|
|
Foreign currency borrowings
|
|
USD
|
|
|
LIBOR + 45 to 82.7 bps
|
|
|
USD
|
|
|
LIBOR + 82.7 bps
|
|
|
|
|
EUR
|
|
|
0.81%
|
|
|
-
|
|
|
-
|
|
Undrawn lines of credit from banks
The Company had undrawn
lines of credit of Rs.21,300 and Rs.21,156 as of September 30, 2017 and March 31, 2017, 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.
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)
13. Other (income)/expense, net
Other (income)/expense,
net consists of the following:
|
|
|
For the six months ended
September 30,
|
|
|
For the three months ended
September 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
(Gain)/loss on sale/disposal of property, plant and equipment and other intangibles, net
|
|
Rs.
|
(2
|
)
|
|
Rs.
|
6
|
|
|
Rs.
|
(6
|
)
|
|
Rs.
|
2
|
|
|
Sale of spent chemicals
|
|
|
(133
|
)
|
|
|
(109
|
)
|
|
|
(74
|
)
|
|
|
(60
|
)
|
|
Miscellaneous income, net
|
|
|
(173
|
)
|
|
|
(270
|
)
|
|
|
(34
|
)
|
|
|
(219
|
)
|
|
|
|
Rs.
|
(308
|
)
|
|
Rs.
|
(373
|
)
|
|
Rs.
|
(114
|
)
|
|
Rs.
|
(277
|
)
|
14. Finance (expense)/income, net
Finance (expense)/income,
net consists of the following:
|
|
|
For the six months ended
September 30,
|
|
|
For the three months ended
September 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
Interest income
|
|
Rs.
|
207
|
|
|
Rs.
|
348
|
|
|
Rs.
|
64
|
|
|
Rs.
|
77
|
|
|
Dividend and profit on sale of other investments
(1)
|
|
|
371
|
|
|
|
663
|
|
|
|
88
|
|
|
|
377
|
|
|
Foreign exchange gain/(loss), net
|
|
|
57
|
|
|
|
73
|
|
|
|
47
|
|
|
|
37
|
|
|
Interest expense
|
|
|
(438
|
)
|
|
|
(274
|
)
|
|
|
(223
|
)
|
|
|
(126
|
)
|
|
|
|
Rs.
|
197
|
|
|
Rs.
|
810
|
|
|
Rs.
|
(24
|
)
|
|
Rs.
|
365
|
|
|
|
(1)
|
Profit on sale of other investments primarily represents amounts reclassified from other comprehensive
income to the consolidated income statement on redemption of the Company’s “available for sale” financial instruments.
|
15. Share capital and share premium
The following table
presents the changes in number of equity shares and amount of equity share capital for the six months ended September 30, 2017
and September 30, 2016:
|
|
|
As of September 30, 2017
|
|
|
As of September 30, 2016
|
|
|
|
|
Number
|
|
|
Amount
|
|
|
Number
|
|
|
Amount
|
|
|
Opening number of equity shares
|
|
|
165,741,713
|
|
|
Rs.
|
829
|
|
|
|
170,607,653
|
|
|
Rs.
|
853
|
|
|
Issue of equity shares on exercise of options
(1)
|
|
|
137,564
|
|
|
|
0
|
|
|
|
180,636
|
|
|
|
1
|
|
|
Buyback of equity shares
(2)
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,077,504
|
)
|
|
|
(25
|
)
|
|
Closing number of equity shares
|
|
|
165,879,277
|
|
|
Rs.
|
829
|
|
|
|
165,710,785
|
|
|
Rs.
|
829
|
|
|
|
(1)
|
During the six months ended September 30, 2017 and 2016, there were 137,564 and 180,636 equity
shares, respectively, issued as a result of the exercise of vested options granted to employees pursuant to the Dr. Reddy’s
Employees Stock Option Plan-2002 and Dr. Reddy’s Employees Stock Option Plan-2007. All of the options exercised had an exercise
price of Rs.5, being equal to the par value of the underlying shares. 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 statements of changes in equity.
|
|
|
(2)
|
The Board of Directors of the Company, in their meeting held on February 17, 2016, approved a proposal
to buy back equity shares of the Company, subject to approval by the Company’s shareholders, for an aggregate amount not
exceeding Rs.15,694 and at a price not exceeding Rs.3,500 per equity share. The plan involved the purchase of such shares from
shareholders of the Company (including persons who become shareholders by cancelling American Depository Shares and receiving underlying
equity shares, and excluding the promoters and promoter group of the Company) under the open market route in accordance with the
provisions contained in the Securities and Exchange Board of India (Buy Back of Securities) Regulations, 1998 and the Companies
Act, 2013 and rules made thereunder. The shares bought back under this plan were required to be extinguished in accordance with
the provisions of the Securities and Exchange Board of India (Buy Back of Securities) Regulations, 1998 and the Companies Act,
2013 and rules made thereunder.
|
The Company’s shareholders
approved the buyback plan on April 1, 2016, and implementation of the buyback plan commenced on April 18, 2016 and ended on June
28, 2016. Under this plan, the Company bought back and extinguished 5,077,504 equity shares for an aggregate purchase price of
Rs.15,694. The aggregate face value of the equity shares bought back was Rs.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)
16. Employee stock incentive plans
Pursuant to the special
resolutions approved by the shareholders in the Annual General Meetings held on September 24, 2001 and on July 27, 2005,
respectively, the Company instituted the Dr. Reddy’s Employees Stock Option Plan-2002 (the “DRL 2002 Plan”) and
the Dr. Reddy’s Employees ADR Stock Option Plan-2007 (the “DRL 2007 Plan”), each of which allows for grants of
stock options to eligible employees.
The terms and conditions
of the grants made during the six months ended September 30, 2017 under the above plans were as follows:
|
Particulars
|
|
Number of
instruments
|
|
|
Exercise price
|
|
|
Vesting
period
|
|
|
Contractual
life
|
|
|
DRL 2002 Plan
|
|
|
151,712
|
|
|
Rs.
|
5.00
|
|
|
|
1 to 4 years
|
|
|
|
5 years
|
|
|
DRL 2007 Plan
|
|
|
63,304
|
|
|
Rs.
|
5.00
|
|
|
|
1 to 4 years
|
|
|
|
5 years
|
|
The above grants were
made on May 11, 2017.
The terms and conditions
of the grants made during the six months ended September 30, 2016 under the above plans were as follows:
|
Particulars
|
|
Number of
instruments
|
|
|
Exercise price
|
|
|
Vesting
period
|
|
|
Contractual
life
|
|
|
DRL 2002 Plan
|
|
|
102,640
|
|
|
Rs.
|
5.00
|
|
|
|
1 to 4 years
|
|
|
|
5 years
|
|
|
DRL 2007 Plan
|
|
|
52,956
|
|
|
Rs.
|
5.00
|
|
|
|
1 to 4 years
|
|
|
|
5 years
|
|
The above grants were
made on July 26, 2016 and September 20, 2016.
During the year ended
March 31, 2015, the Company adopted a new program to grant performance linked stock options to certain employees under the DRL
2002 Plan and the DRL 2007 Plan. Under this program, performance was measured each year against pre-defined interim targets over
the three year period ended on March 31, 2017 and eligible employees were granted stock options upon meeting such targets. The
stock options so granted will vest only upon satisfaction of certain service conditions which range from 1 to 4 years. After vesting,
such stock options generally have a maximum contractual term of five years.
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:
|
|
|
May 11, 2017
|
|
|
September 20, 2016
|
|
|
July 26, 2016
|
|
|
Expected volatility
|
|
|
30.08
|
%
|
|
|
32.92
|
%
|
|
|
29.88
|
%
|
|
Exercise price
|
|
Rs.
|
5.00
|
|
|
Rs.
|
5.00
|
|
|
Rs.
|
5.00
|
|
|
Option life
|
|
|
2.5 Years
|
|
|
|
2.5 Years
|
|
|
|
2.5 Years
|
|
|
Risk-free interest rate
|
|
|
6.69
|
%
|
|
|
6.81
|
%
|
|
|
6.91
|
%
|
|
Expected dividends
|
|
|
0.77
|
%
|
|
|
0.60
|
%
|
|
|
0.60
|
%
|
|
Grant date share price
|
|
Rs.
|
2,594.00
|
|
|
Rs.
|
3,157.80
|
|
|
Rs.
|
3,319.65
|
|
Share-based payment expense
|
|
|
For the six months ended
September 30,
|
|
|
For the three months ended
September 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
Cash settled share-based payment expense
(1)
|
|
|
7
|
|
|
|
11
|
|
|
|
(2
|
)
|
|
|
4
|
|
|
Equity settled share-based payment expense
(2)
|
|
|
214
|
|
|
|
148
|
|
|
|
103
|
|
|
|
78
|
|
|
|
|
|
221
|
|
|
|
159
|
|
|
|
101
|
|
|
|
82
|
|
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)
16. Employee stock incentive plans (continued)
|
|
(1)
|
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 September 30, 2017, there was Rs.108 of total unrecognized
compensation cost related to unvested awards. This cost is expected to be recognized over a weighted-average period of 3.45 years.
This scheme does not involve dealing in or subscribing to or purchasing securities of the Company, directly or indirectly.
|
|
|
(2)
|
As of September 30, 2017, there was Rs.515 of total unrecognized compensation cost related to unvested
stock options. This cost is expected to be recognized over a weighted-average period of 3.11 years.
|
17. 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 equity securities of Indian companies.
For the three months
and six months ended September 30, 2017, the net periodic benefit cost was Rs.65 and Rs.129, respectively (as compared to Rs.59
and Rs.118 for the three months and six months ended September 30, 2016, 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.948 and Rs.855 as at September
30, 2017 and March 31, 2017, respectively.
Long term incentive plan
Certain senior management
employees of the Company participate in a long term incentive plan which is aimed at rewarding the individual, based on performance
of such individual, their business unit/function and the Company as a whole, with significantly higher rewards for superior performances.
The total liability recorded by the Company towards this benefit was Rs.622 as at March 31, 2017. The plan ended on March 31, 2017
and the liability has been paid.
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)
18. 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, income exempted from income taxes, and effects
of changes in tax laws and rates.
The Company’s consolidated weighted average tax rate for the six months ended September 30, 2017
and 2016 was 26% and 24%, respectively. Income tax expense was Rs.1,208 for the six months ended September 30, 2017, as compared
to income tax expense of Rs.1,329 for the six months ended September 30, 2016.
The
Company’s consolidated weighted average tax rate for the three months ended September 30, 2017 and 2016 was 26.5% and
23.1%, respectively. Income tax expense was Rs.1,027 for the three months ended September 30, 2017, as compared to income
tax expense of Rs.885 for the three months ended September 30, 2016.
The effective rates
of tax for the three months and six months ended September 30, 2016 were lower primarily on account of tax deduction claimed on
sale of investments.
Total tax benefits
recognized directly in the equity were Rs.172 and Rs.522 for the three months and six months ended September 30, 2017, respectively
(as compared to tax expenses of Rs.461 and Rs.476 for the three months and six months ended September 30, 2016, respectively).
Such tax expenses and benefits were primarily due to tax effects on the changes in fair value of available for sale financial instruments
and the foreign exchange gain/loss on cash flow hedges.
19. 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 services;
|
|
|
·
|
Dr.
Reddy’s Foundation towards contributions for social development;
|
|
|
·
|
Pudami
Educational Society towards contributions for social development;
|
|
|
·
|
Dr.
Reddy’s Institute of Life Sciences for research and development services
;
and
|
|
|
·
|
Stamlo Hotels 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.
The following is a
summary of significant related party transactions:
|
|
|
For the six months ended
September 30,
|
|
|
For the three months ended
September 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
Research and development services received
|
|
Rs.
|
40
|
|
|
Rs.
|
57
|
|
|
Rs.
|
15
|
|
|
Rs.
|
33
|
|
|
Contributions towards social development
|
|
|
122
|
|
|
|
151
|
|
|
|
73
|
|
|
|
72
|
|
|
Hotel expenses paid
|
|
|
23
|
|
|
|
19
|
|
|
|
8
|
|
|
|
9
|
|
|
Catering expenses paid
|
|
|
74
|
|
|
|
-
|
|
|
|
63
|
|
|
|
-
|
|
|
Lease rentals paid under cancellable operating leases to key management personnel and close members of their families
|
|
|
18
|
|
|
|
20
|
|
|
|
8
|
|
|
|
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)
19. Related parties (continued)
The Company had the following amounts due
from related parties as at the following dates:
|
|
|
As at
|
|
|
|
|
September 30, 2017
|
|
|
March 31, 2017
|
|
|
Key management personnel and close members of their families (towards rent deposits)
|
|
Rs.
|
8
|
|
|
Rs.
|
8
|
|
|
Other related parties
|
|
|
39
|
|
|
|
-
|
|
The Company had the following amounts due
to related parties as at the following dates:
|
|
|
As at
|
|
|
|
|
September 30, 2017
|
|
|
March 31, 2017
|
|
|
Due to related parties
|
|
Rs.
|
1
|
|
|
Rs.
|
9
|
|
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 six months ended
September 30,
|
|
|
For the three months ended
September 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
Salaries and other benefits
(1)
|
|
Rs.
|
222
|
|
|
Rs.
|
213
|
|
|
Rs.
|
114
|
|
|
Rs.
|
108
|
|
|
Contributions to defined contribution plans
|
|
|
15
|
|
|
|
14
|
|
|
|
8
|
|
|
|
7
|
|
|
Commission to directors
|
|
|
165
|
|
|
|
165
|
|
|
|
82
|
|
|
|
82
|
|
|
Share-based payments expense
|
|
|
47
|
|
|
|
29
|
|
|
|
22
|
|
|
|
16
|
|
|
|
|
Rs.
|
449
|
|
|
Rs.
|
421
|
|
|
Rs.
|
226
|
|
|
Rs.
|
213
|
|
|
(1)
|
In addition to the above, the Company has accrued Rs.0 towards a long term incentive plan for the
services rendered by key management personnel for the three months and six months ended September 30, 2017, respectively (as compared
to Rs.41 and Rs.60 for the three months and six months ended September 30, 2016). Refer to Note 17 of these interim financial statements
for further details.
|
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.
20. Nature of Expense
The following table
shows supplemental information related to certain “nature of expense” items for the six months and three months ended
September 30, 2017 and 2016:
|
Employee benefits
|
|
For the six months ended
September 30,
|
|
|
For the three months ended
September 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
Cost of revenues
|
|
Rs.
|
5,202
|
|
|
Rs.
|
5,421
|
|
|
Rs.
|
2,566
|
|
|
Rs.
|
2,754
|
|
|
Selling, general and administrative expenses
|
|
|
8,336
|
|
|
|
8,327
|
|
|
|
4,111
|
|
|
|
4,163
|
|
|
Research and development expenses
|
|
|
2,425
|
|
|
|
2,463
|
|
|
|
1,213
|
|
|
|
1,244
|
|
|
|
|
Rs.
|
15,963
|
|
|
Rs.
|
16,211
|
|
|
Rs.
|
7,890
|
|
|
Rs.
|
8,161
|
|
|
Depreciation and amortization
|
|
For the six months ended
September 30,
|
|
|
For the three months ended
September 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
Cost of revenues
|
|
Rs.
|
3,289
|
|
|
Rs.
|
2,932
|
|
|
Rs.
|
1,676
|
|
|
Rs.
|
1,519
|
|
|
Selling, general and administrative expenses
|
|
|
1,841
|
|
|
|
1,981
|
|
|
|
950
|
|
|
|
1,005
|
|
|
Research and development expenses
|
|
|
610
|
|
|
|
615
|
|
|
|
315
|
|
|
|
323
|
|
|
|
|
Rs.
|
5,740
|
|
|
Rs.
|
5,528
|
|
|
Rs.
|
2,941
|
|
|
Rs.
|
2,847
|
|
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. Contingencies
The Company is involved
in disputes, lawsuits, claims, governmental and/or regulatory inspections, inquiries, investigations and proceedings, including
patent and commercial matters that arise from time to time in the ordinary course of business. The more significant matters are
discussed below. Most of the claims involve complex issues. Often, these issues are subject to uncertainties and therefore the
probability of a loss, if any, being sustained and an estimate of the amount of any loss is difficult to ascertain. Consequently,
for a majority of these claims, it is not possible to make a reasonable estimate of the expected financial effect, if any, that
will result from ultimate resolution of the proceedings. This is due to a number of factors, including: the stage of the proceedings
(in many cases trial dates have not been set) and the overall length and extent of pre-trial discovery; the entitlement of the
parties to an action to appeal a decision; clarity as to theories of liability; damages and governing law; uncertainties in timing
of litigation; and the possible need for further legal proceedings to establish the appropriate amount of damages, if any. In these
cases, the Company discloses information with respect to the nature and facts of the case. The Company also believes that disclosure
of the amount sought by plaintiffs, if that is known, would not be meaningful with respect to those legal proceedings.
Although there can
be no assurance regarding the outcome of any of the legal proceedings or investigations referred to in this Note, the Company does
not expect them to have a materially adverse effect on its financial position, as it believes that the likelihood of loss in excess
of amounts accrued (if any) is not probable. However, if one or more of such proceedings were to result in judgments against the
Company, such judgments could be material to its results of operations in a given period.
Product and patent related matters
Matters relating to National Pharmaceutical Pricing Authority
Norfloxacin, India litigation
The Company manufactures
and distributes Norfloxacin, a formulations product, and in limited quantities, the active pharmaceutical ingredient Norfloxacin.
Under the Drugs Prices Control Order (the “DPCO”), the National Pharmaceutical Pricing Authority (the “NPPA”)
established by the Government of India had the authority to designate a pharmaceutical product as a “specified product”
and fix the maximum selling price for such product. In 1995, the NPPA issued a notification and designated Norfloxacin as a “specified
product” and fixed the maximum selling price. In 1996, the Company filed a statutory Form III before the NPPA for the upward
revision of the maximum selling price and a writ petition in the Andhra Pradesh High Court (the “High Court”) challenging
the validity of the designation on the grounds that the applicable rules of the DPCO were not complied with while fixing the maximum
selling price. The High Court had previously granted an interim order in favor of the Company; however it subsequently dismissed
the case in April 2004.
The Company filed
a review petition in the High Court in April 2004 which was also dismissed by the High Court in October 2004. Subsequently, the
Company appealed to the Supreme Court of India, New Delhi (the “Supreme Court”) by filing a Special Leave Petition.
During the year ended
March 31, 2006, the Company received a notice from the NPPA demanding the recovery of the price charged by the Company for sales
of Norfloxacin in excess of the maximum selling price fixed by the NPPA, which was Rs.285 including interest. The Company filed
a writ petition in the High Court challenging this demand order. The High Court admitted the writ petition and granted an interim
order, directing the Company to deposit 50% of the principal amount claimed by the NPPA, which was Rs.77. The Company deposited
this amount with the NPPA in November 2005. In February 2008, the High Court directed the Company to deposit an additional
amount of Rs.30, which was deposited by the Company in March 2008. In November 2010, the High Court allowed the Company’s
application to include additional legal grounds that the Company believed strengthened its defense against the demand. For example,
the Company added as grounds that trade margins should not be included in the computation of amounts overcharged, and that it was
necessary for the NPPA to set the active pharmaceutical ingredient price before the process of determining the ceiling on the formulation
price. In October 2013, the Company filed an additional writ petition before the Supreme Court challenging the inclusion of Norfloxacin
as a “specified product” under the DPCO. In January 2015, the NPPA filed a counter affidavit stating that the inclusion
of Norfloxacin was based upon the recommendation of a committee consisting of experts in the field. On July 20, 2016,
the Supreme Court remanded the matters concerning the inclusion of Norfloxacin as a “specified product” under the DPCO
back to the High Court for further proceedings. During the three months ended December 31, 2016, a writ petition pertaining to
Norfloxacin was filed by the Company with the Delhi High Court. Such writ petition is pending for admission.
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. Contingencies (continued)
Product
and patent related matters (continued)
During the three months
ended September 30, 2016, the Supreme Court dismissed the Special Leave Petition pertaining to the fixing of prices for Norfloxacin
formulations.
Based on its best estimate, the Company
has recorded a provision for potential liability for sale proceeds in excess of the notified selling prices, including the interest
thereon, and believes that the likelihood of any further liability that may arise on account of penalties pursuant to this litigation
is not probable.
Litigation
relating to Cardiova
scular and Anti-diabetic formulations
In July 2014, the
NPPA, pursuant to the guidelines issued in May 2014 and the powers granted by the Government of India under the Drugs (Price Control)
Order, 2013, issued certain notifications regulating the prices for 108 formulations in the cardiovascular and antidiabetic therapeutic
areas. The Indian Pharmaceutical Alliance (“IPA”), in which the Company is a member, filed a writ petition in the Bombay
High Court challenging the notifications issued by the NPPA on the grounds that they were ultra vires, ex facie and ab initio void. The
Bombay High Court issued an order to stay the writ in July 2014. On September 26, 2016, the Bombay High Court dismissed the writ
petition filed by the IPA and upheld the validity of the notifications/orders passed by the NPPA in July 2014. Further, on
October 25, 2016, the IPA filed a Special Leave Petition with the Supreme Court, which was dismissed by the Supreme Court.
During the three months
ended December 31, 2016, the NPPA issued show-cause notices relating to allegations that the Company exceeded the notified maximum
prices for 11 of its products. The Company has responded to these notices.
On March 20, 2017,
the IPA filed an application before the Bombay High Court for the recall of the judgment of the High Court dated September 26,
2016 on the grounds that certain information important for the determination of the issue was not disclosed by the counsel representing
the Union of India during the proceedings before the Bombay High Court.
On April 26, 2017,
the Bombay High Court heard the recall application and directed the matter to the same bench of judges of the Bombay High Court
which passed the original judgment on September 26, 2016. Further, it also directed the Union of India and others to file their
reply. This recall application filed by the IPA was dismissed by the Bombay High Court on October 4, 2017.
During the three months
ended March 31, 2017, the NPPA issued notices to the Company demanding payments relating to the foregoing products for the allegedly
overcharged amounts, along with interest. The Company has responded to these notices. Further, the Company filed a writ petition
with the Delhi High Court on July 7, 2017. The Delhi High Court disposed of the writ petition on July 13, 2017, by setting aside
all the demand notices of the NPPA and directed the NPPA to provide a personal hearing to the Company and pass a speaking order
thereupon within a period of two weeks. A personal hearing in this regard was held on July 21, 2017. On July 27, 2017, the NPPA
passed a speaking order along with the demand notice directing the Company to pay an amount of Rs.776. On August 3, 2017, the Company
filed a writ petition challenging the speaking order and the demand notice. Upon hearing the matter on August 8, 2017, the Delhi
High Court stayed the operation of the demand order and directed the Company to deposit Rs.100 and furnish a bank guarantee for
Rs.676 within six weeks. Pursuant to the order, the Company deposited Rs.100 on September 13, 2017 and submitted a bank guarantee
of Rs.676 dated September 15, 2017 to the Registrar General, Delhi High Court.
Based on its best
estimate, the Company has recorded a provision of Rs.395 under “Selling, general and administrative expenses” as a
potential liability for sale proceeds in excess of the notified selling prices, including the interest thereon, and believes that
the likelihood of any further liability that may arise on account of penalties pursuant to this litigation is not probable.
However, if the Company
is unsuccessful in such litigation, it will be required to remit the sale proceeds in excess of the notified selling prices to
the Government of India with interest and could potentially include penalties, which amounts are not readily ascertainable.
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. Contingencies (continued)
Product and patent related matters (continued)
Other Product and patent related matters
Nexium United States litigations
Five federal antitrust
class action lawsuits were brought on behalf of direct purchasers of Nexium®, and ten federal class action lawsuits were brought
under both state and federal law on behalf of end-payors of Nexium®. These actions were filed against various generic manufacturers,
including the Company and its U.S. subsidiary Dr. Reddy’s Laboratories Inc. These actions were consolidated in the United
States District Court for the District of Massachusetts.
The complaints alleged
that AstraZeneca and the involved generic manufacturers settled patent litigation related to Nexium® capsules in a manner that
violated antitrust laws. The Company consistently maintained that its conduct complied with all applicable laws and that the complaints
were without merit. In response to a motion for summary judgment made by the Company, the Court granted the motion in part and
denied it in part, finding that the plaintiffs had failed to demonstrate that the Company’s settlement of patent litigation
with AstraZeneca included any large or unjustified reverse payment, but preserving other claims for trial.
On October 20, 2014,
the Company reached a settlement with all plaintiffs who had cases pending in the District of Massachusetts. The settlement with
the class plaintiffs was subject to the Court’s approval. Under the terms of the settlement, the Company made no payment
to the class plaintiffs. Other defendants went to trial and prevailed.
The Court granted
preliminary approval of the Company’s settlements with the class plaintiffs on January 28, 2015, and granted final approval
of such settlements on September 29, 2015.
On November 21, 2016,
the First Circuit Court of Appeals affirmed the judgment that had been entered in favor of the defendants who tried the case to
a verdict. On January 10, 2017, the First Circuit Court of Appeals denied the motions for reconsideration.
In addition, two complaints,
similar in nature to those referenced above, were filed in the Court of Common Pleas in Philadelphia, Pennsylvania by plaintiffs
who chose to opt out of the class action lawsuit. No dispositive motions have been filed in these actions.
The Company believes
that the likelihood of any liability that may arise on account of lawsuits of the plaintiffs who opted out of the class action
is not probable. Accordingly, no provision has been made in these interim financial statements.
Child resistant packaging matter
In May 2012, the Consumer
Product Safety Commission (the “CPSC”) requested that Dr. Reddy’s Laboratories Inc., a wholly-owned subsidiary
of the Company in the United States, provide certain information with respect to compliance with requirements of special packaging
for child resistant blister packs for 6 products sold by the Company in the United States during the period commencing in 2002
through 2011. The Company provided the requested information. The CPSC subsequently alleged in a letter dated April 30, 2014 that
the Company had violated the Consumer Product Safety Act (the “CPSA”) and the Poison Prevention Packaging Act (the
“PPPA”) and that the CPSC intended to seek civil penalties. Specifically, the CPSC asserted, among other things, that
from or about August 14, 2008 through June 1, 2012, the Company sold prescription drugs having unit dose packaging that failed
to comply with the CPSC's special child resistant packaging regulations under the PPPA and failed to issue general certificates
of conformance. In addition, the CPSC asserted that the Company violated the CPSA by failing to immediately advise the CPSC of
the alleged violations. The Company disagrees with the CPSC’s allegations.
Simultaneously, the
U.S. Department of Justice (the “DOJ”) began to investigate a sealed complaint which was filed in the United States
District Court for the Eastern District of Pennsylvania under the Federal False Claims Act (“FCA”) related to these
same issues (the “FCA Complaint”). The Company cooperated with the DOJ in its investigation. The DOJ and all States
involved in the investigation declined to intervene in the FCA Complaint. On November 10, 2015, the FCA Complaint was unsealed
and the plaintiff whistleblowers, who are two former employees of the Company, have proceeded without the DOJ’s and applicable
States’ involvement. The unsealed FCA Complaint relates to the 6 blister pack products originally subject to the investigation
and also 38 of the Company’s generic prescription products sold in the U.S. in various bottle and cap packaging.
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. Contingencies (continued)
Product and patent related matters (continued)
The Company filed
its response to the FCA Complaint on February 23, 2016 in the form of a motion to dismiss for failure to state a claim upon which
relief can be granted.
On March 26, 2017, the Court granted the Company’s
motion to dismiss
,
dismissing the FCA Complaint and allowing the plaintiffs one more chance to refile this complaint in an attempt to plead sustainable
allegations. On March 29, 2017, the plaintiffs filed their final amended FCA Complaint, which the Company is vigorously opposing
and seeking permanent dismissal of this amended FCA Complaint with prejudice.
Although the DOJ and
applicable States have declined to intervene in the FCA Complaint filed by the plaintiffs, the parallel investigation by the CPSC
under the CPSA and the PPPA was referred by the CPSC to the DOJ’s office in Washington, D.C. in April 2016, with the recommendation
that the DOJ initiate a civil penalty action against the Company. The CPSC matter referred to the DOJ relates to five of the blister
pack products. An unfavorable outcome in these matters could result in liabilities which could have a material adverse effect on
the Company.
Namenda United States Litigations
In
August 2015, Sergeants Benevolent Assoc. Health & Welfare Fund (“Sergeants”) filed suit against the Company in
the United States District Court for the Southern District of New York. Sergeants alleged that certain parties, including the Company,
violated federal antitrust laws as a consequence of having settled patent litigation related to the Alzheimer’s drug Namenda®
(memantine) tablets during a period from about 2009 until 2010. Sergeants seek to represent a class of “end-payor”
purchasers of Namenda® tablets (i.e., insurers, other third-party payors and consumers).
Sergeants
seeks damages based upon an allegation made in the complaint that the defendants entered into patent settlements regarding Namenda®
tablets for the purpose of delaying generic competition and facilitating the brand innovator’s attempt to shift sales from
the original immediate release product to the more recently introduced extended release product. The Company believes that the
complaint lacks merit and that the Company’s conduct complied with all applicable laws and regulations.
All defendants, including
the Company, moved to dismiss the claims. On September 13, 2016, the Court denied these motions. However, the Sergeants case is
stayed pending resolution of similar claims in another case in which the Company is not a party (
JM Smith Corp. v. Actavis PLC
).
The parties in the
JM Smith
case have served the Company with subpoenas, in response to which the Company produced the specific
documents subpoenaed and provided testimony in a deposition.
Four
other class action complaints, each containing similar allegations to the Sergeants complaint, have also been filed in the Southern
District of New York. However, two of those complaints were voluntarily dismissed, and the other two do not name the Company as
a defendant.
In
addition, the State of New York filed an antitrust case in the Southern District of New York. The case brought by the State of
New York contained some (but not all) of the allegations set forth in the class action complaints, but the Company was not named
as a party. The case brought by the State of New York was dismissed by stipulation on November 30, 2015.
The
Company believes that the likelihood of any liability that may arise on account of alleged violation of federal antitrust laws
is not probable. Accordingly, no provision has been made in these interim financial statements.
Class
Action and Other Civil Litigation on Pricing/Reimbursement Matters
On
December 30, 2015 and on February 4, 2016, respectively, a class action complaint (the “First Pricing Complaint”) and
another complaint (not a class action) (the “Second Pricing Complaint”) were filed against the Company and eighteen
other pharmaceutical defendants in State Court in the Commonwealth of Pennsylvania. In these actions, the class action plaintiffs
allege that the Company and other defendants, individually or in some cases in concert with one another, have engaged in pricing
and price reporting practices in violation of various Pennsylvania state laws. More specifically, the plaintiffs allege that: (1)
the Company provided false and misleading pricing information to third party drug compendia companies for the Company’s generic
drugs, and such information was relied upon by private third party payers that reimbursed for drugs sold by the Company in the
United States, and (2) the Company acted in concert with certain other defendants to unfairly raise the prices of generic divalproex
sodium ER (bottle of 80, 500 mg tablets ER 24H) and generic pravastatin sodium (bottle of 500, 10 mg tablets).
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. Contingencies (continued)
Product and patent related matters (continued)
The
First Pricing Complaint was removed to the Federal Court and, pending the outcome of the First Pricing Complaint, the Second Pricing
Complaint was stayed. On September 25, 2017, the Federal Court dismissed all the claims of the plaintiffs in the First Pricing
Complaint and denied leave to amend such complaint as futile. Subsequent to this decision, the plaintiffs had the right to appeal
the dismissal of the First Pricing Complaint which has expired.
Further,
on November 17, 2016, certain class action complaints were filed against the Company and a number of other pharmaceutical companies
as defendants in the United States District Court for the Eastern District of Pennsylvania (“E.D.P.A”). Subsequently,
these complaints were consolidated into one amended complaint as part of a multi-district, multi-product litigation pending with
the District Court for the E.D.P.A. These complaints allege that the Company and the other named defendants have engaged in a conspiracy
to fix prices and to allocate bids and customers in the sale of pravastatin sodium tablets and divalproex sodium extended-release
tablets in the United States. In March 2017, plaintiffs agreed by stipulation to dismiss Dr. Reddy’s Laboratories Inc. and
Dr. Reddy’s Laboratories Limited from the actions related to pravastatin sodium tablets without prejudice. The Company denies
any wrongdoing and intends to vigorously defend against these allegations.
The
Company believes that the likelihood of any liability that may arise on account of any of these complaints is not probable. Accordingly,
no provision has been made in these interim financial statements.
Civil litigation with Mezzion
On
January 13, 2017, Mezzion Pharma Co. Ltd. and Mezzion International LLC (collectively, “Mezzion”) filed a complaint
in the New Jersey Superior Court against the Company and its wholly owned subsidiary in the United States. The complaint pertains
to the production and supply of the active pharmaceutical ingredient (“API”) for udenafil (a patented compound) and
an udenafil finished dosage product during a period from calendar years 2007 to 2015. Mezzion alleges that the Company failed to
comply with the U.S. FDA’s current Good Manufacturing Practices (“cGMP”) at the time of manufacture of the API
and finished dosage forms of udenafil and, consequently, that this resulted in a delay in the filing of a NDA for the product by
Mezzion. The Company denies any wrongdoing or liability in this regard, and intends to vigorously defend against the claims asserted
in Mezzion’s complaint. The Company believes that the likelihood of any liability that may arise on account of this complaint
is not probable. Accordingly, no provision was made in the interim financial statements of the Company.
Environmental matters
Land pollution
The
Indian Council for Environmental Legal Action filed a writ in 1989 under Article 32 of the Constitution of India against the Union
of India and others in the Supreme Court of India for the safety of people living in the Patancheru and Bollarum areas of Medak
district of the then existing undivided state of Andhra Pradesh. The Company has been named in the list of polluting industries.
In 1996, the Andhra Pradesh District Judge proposed that the polluting industries compensate farmers in the Patancheru, Bollarum
and Jeedimetla areas for discharging effluents which damaged the farmers’ agricultural land. The compensation was fixed at
Rs.0.0013 per acre for dry land and Rs.0.0017 per acre for wet land. Accordingly, the Company has paid a total compensation of
Rs.3. The Andhra Pradesh High Court disposed of the writ petition on February 12, 2013 and transferred the case to the National
Green Tribunal (“NGT”), Chennai, India. The interim orders passed in the writ petitions will continue until the matter
is decided by the NGT. The NGT has, through its order dated October 30, 2015, constituted a Fact Finding Committee. The NGT has
also permitted the alleged polluting industries to appoint a person on their behalf in the Fact Finding Committee. However, the
Company along with the alleged polluting industries has challenged the constitution and composition of the Fact Finding Committee.
The NGT has directed that until all the applications challenging the constitution and composition of the Fact Finding Committee
are disposed of, the Fact Finding Committee shall not commence its operation.
The
NGT, Chennai vide its judgment dated October 24, 2017 disposed of the matter. The Company believes that any additional liability
arising in this regard is not material to the interim financial statements.
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. Contingencies (continued)
Environmental matters (continued)
Water pollution and air pollution
During the year ended March 31, 2012, the
Company, along with 14 other companies, received a notice from the Andhra Pradesh Pollution Control Board (the “APP Control
Board”) to show cause as to why action should not be initiated against them for violations under the Indian Water Pollution
Act and the Indian Air Pollution Act. Furthermore, the APP Control Board issued orders to the Company to (i) stop production of
all new products at the Company’s manufacturing facilities in Hyderabad, India without obtaining a “Consent for Establishment”,
(ii) cease manufacturing products at such facilities in excess of certain quantities specified by the APP Control Board and (iii)
furnish a bank guarantee to assure compliance with the APP Control Board’s orders.
The
Company appealed the APP Control Board orders to the Andhra Pradesh Pollution Appellate Board (the “APP Appellate Board”).
The APP Appellate Board, on the basis of a report of a fact-finding advisory committee, recommended to the Andhra Pradesh Government
to allow expansion of units fully equipped with Zero-Liquid Discharge (“ZLD”) facilities and otherwise found no fault
with the Company (on certain conditions).
The
APP Appellate Board’s decision was challenged by one of the petitioners in the National Green Tribunal and the matter is
currently pending before it.
Separately,
the Andhra Pradesh Government, following recommendations of the APP Appellate Board, published a notification in July 2013 that
allowed expansion of production of all types of existing bulk drug and bulk drug intermediate manufacturing units subject to the
installation of ZLD facilities and the outcome of cases pending in the National Green Tribunal. Importantly, the notification directed
pollution load of industrial units to be assessed at the point of discharge (if any) as opposed to point of generation.
In
September 2013, the Ministry of Environment and Forests, based on the revised Comprehensive Environment Pollution Index, issued
a notification that re-imposed a moratorium on expansion of industries in certain areas where some of the Company’s manufacturing
facilities are located. This notification overrides the Andhra Pradesh Government’s notification that conditionally permitted
expansion
.
Indirect taxes related matters
Distribution of input service tax credits
The Central Excise
Authorities have issued various demand notices to the Company objecting to the Company’s methodology of distributing input
service tax credits claimed for one of the Company’s facilities. The below table shows the details of each such demand notice,
the amount demanded and the current status of the Company’s responsive actions.
Period covered under the
notice
|
|
Amount demanded
|
|
Status
|
|
March 2008 to September 2009
|
|
Rs.102 plus penalties of Rs.102 and interest
|
|
The Company has filed an appeal before the CESTAT.
|
|
October 2009 to March 2011
|
|
Rs.125 plus penalties of Rs.100 and interest
|
|
The Company has filed an appeal before the CESTAT.
|
|
April 2011 to March 2012
|
|
Rs.51 plus interest and penalties
|
|
The Company has filed an appeal before the CESTAT.
|
|
April 2012 to March 2013
|
|
Rs.54 plus interest and penalties
|
|
The Company has filed an appeal before the CESTAT.
|
|
April 2013 to March 2014
|
|
Rs.69 plus interest and penalties
|
|
The Company has filed an appeal before the CESTAT.
|
|
April 2014 to March 2015
|
|
Rs.108 plus interest and penalties
|
|
The Company has filed an appeal before the CESTAT.
|
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. Contingencies (continued)
Indirect taxes related matters (continued)
The Company believes
that the likelihood of any liability that may arise on account of the allegedly inappropriate distribution of input service tax
credits is not probable. Accordingly, no provision relating to these claims has been made in these interim financial statements
as of September 30, 2017.
Value Added Tax (“VAT”)
matter
The Company has received
various demand notices from the Government of Telangana’s Commercial Taxes Department objecting to the Company’s methodology
of calculation of VAT input credit. The below table shows the details of each of such demand notice, the amount demanded and the
current status of the Company’s responsive actions.
Period covered
under the notice
|
|
Amount demanded
|
|
Status
|
|
April 2006 to March 2009
|
|
Rs.66 plus 10% penalty
|
|
The Company has filed an appeal before the Sales Tax Appellate Tribunal.
|
|
April 2009 to March 2011
|
|
Rs.59 plus 10% penalty
|
|
The Company has filed an appeal before the Sales Tax Appellate Tribunal.
|
|
April 2011 to March 2013
|
|
Rs.16 plus 10% penalty
|
|
The Appellate Deputy Commissioner issued an order partially in favor of the Company.
|
The Company has recorded a provision of Rs.27 as of September
30, 2017, and believes that the likelihood of any further liability that may arise on account of the allegedly inappropriate claims
to VAT credits is not probable.
Others
Additionally, the
Company is in receipt of various demand notices from the Indian Sales and Service Tax authorities. The disputed amount is Rs.174.
The Company has responded to such demand notices and believes that the chances of any liability arising from such notices are less
than probable. Accordingly, no provision is made in these interim financial statements as of September 30, 2017.
Fuel Surcharge Adjustments
The Andhra Pradesh
Electricity Regulatory Commission (the “APERC”) passed various orders approving the levy of Fuel Surcharge Adjustment
(“FSA”) charges for the period from April 1, 2008 to March 31, 2013 by power distribution companies from all the consumers
of electricity in the then existing undivided state of Andhra Pradesh, India where the Company’s headquarters and principal
manufacturing facilities are located. Separate writ petitions filed by the Company for various periods, challenging and questioning
the validity and legality of this levy of FSA charges by the APERC, are pending before the High Court of Andhra Pradesh and the
Supreme Court of India.
After taking into
account all of the available information and legal provisions, the Company has recorded Rs.219 as the potential liability towards
FSA charges. The total amount approved by APERC for collection by the power distribution companies from the Company in respect
of FSA charges for the period from April 1, 2008 to March 31, 2013 is Rs.482. As of March 31, 2017, the Company has made
“payments under protest” of Rs.354 as demanded by the power distribution companies as part of monthly electricity bills.
The Company remains exposed to additional financial liability should the orders passed by the APERC be upheld by the Courts.
During the three months
ended June 30, 2016, the Supreme Court of India dismissed the Special Leave Petition filed by the Company in this regard for the
period from April 1, 2012 to March 31, 2013. As a result, for the quarter ended June 30, 2016, the Company recognized
an expenditure of Rs.55 (by de-recognizing the payments under protest) representing the FSA charges for the period from April 1,
2012 to March 31, 2013.
Direct taxes related matters
The Company is contesting
various disallowances by the Indian Income Tax authorities. The associated tax impact is Rs.1,555. The Company believes that the
chances of an unfavorable outcome in each of such disallowances are less than probable and, accordingly, no provision is made in
these interim financial statements as of September 30, 2017.
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. Contingencies (continued)
Direct taxes related matters (continued)
During
the years ended March 31, 2014, 2015 and 2016, Industrias Quimicas Falcon de Mexico, S.A. de CV, a wholly-owned subsidiary of the
Company in Mexico, received a notice from Mexico's Tax Administration Service,
Servicio de Administracion Tributaria
(“SAT”),
with respect to disallowance on account of transfer pricing adjustments pertaining to the calendar years ended December 31, 2006,
December 31, 2007 and December 31, 2008. The associated tax impact is Rs.674 (MXN 187.4) and the Company has filed administrative
appeals with the SAT by challenging these disallowances. During February and March 2017, the Company received orders of the SAT
confirming these disallowances by dismissing its administrative appeals filed earlier. The Company disagrees with the SAT’s
disallowances and filed an appeal with the Tribunal Federal de Justicia Administrativa (Federal Tax and Administrative Court of
Mexico) in March and April 2017.
The Company believes
that possibility of any liability that may arise on account of this litigation is not probable. Accordingly, no provision has been
made in these interim financial statements as of September 30, 2017.
Others
Additionally,
the Company is involved in other disputes, lawsuits, claims, governmental and/or regulatory inspections, inquiries, investigations
and proceedings, including patent and commercial matters that arise from time to time in the ordinary course of business. Except
as discussed above, the Company does not believe that there are any such contingent liabilities that are expected to have any material
adverse effect on its financial statements.
22. Collaboration agreement with Curis, Inc.
On January 18, 2015,
Aurigene Discovery Technologies Limited ("Aurigene"), a wholly-owned subsidiary of the parent company, entered into a
Collaboration, License and Option Agreement (the "Collaboration Agreement") with Curis, Inc. ("Curis") to discover,
develop and commercialize small molecule antagonists for immuno-oncology and precision oncology targets.
Under the Collaboration
Agreement, Aurigene has the responsibility for conducting all discovery and preclinical activities, including Investigational New
Drug ("IND") enabling studies and providing Phase 1 clinical trial supply, and Curis is responsible for all clinical
development, regulatory and commercialization efforts worldwide, excluding India and Russia. The Collaboration Agreement provides
that the parties will collaborate exclusively in immuno-oncology for an initial period of approximately two years, with the option
for Curis to extend the broad immuno-oncology exclusivity.
As partial consideration
for the collaboration, pursuant to a Stock Purchase Agreement dated January 18, 2015, Curis issued to Aurigene 17.1 million shares
of its common stock, the fair value of which on the date of the Stock Purchase Agreement was Rs.1,452 (U.S.$23.5).
Revenues under the
Collaboration Agreement consist of upfront consideration (including the shares of Curis common stock) and the development and commercial
milestone payments described below, which are deferred and recognized as revenue over the period for which Aurigene has continuing
performance obligations.
Under the Collaboration
Agreement, Aurigene is entitled to development and commercial milestone payments. In addition, Curis has agreed to pay Aurigene
royalties, ranging between high single digits to 10%, on its net sales in territories where it commercializes products. Furthermore,
Aurigene is entitled to receive a share of Curis’ revenues from sublicenses, which share varies based upon specified factors
such as the sublicensed territory, whether the sublicense revenue is royalty based or non-royalty based and, in some cases, the
stage of the applicable molecule and product at the time the sublicense is granted.
On September 7, 2016,
the Collaboration Agreement was amended to provide for the issuance to Aurigene of approximately 10.2 million additional shares
of Curis common stock in lieu of receiving up to U.S.$24.5 of milestone and other payments from Curis that could have become due
under the Collaboration Agreement. These shares of Curis common stock are recorded at U.S.$1.84 per share, which is equal to the
market price of such shares of common stock on the date of issuance, amounting to an aggregate market value of Rs.1,247 (U.S.$18.8).
These additional shares
are subject to a lock-up agreement. This lock-up remains effective until September 7, 2018, with shares being released from such
lock-up in 25% increments on each of March 7, 2017, September 7, 2017, March 7, 2018 and September 7, 2018, subject to acceleration
of release of all the shares in connection with a change of control of Curis.
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)
22. Collaboration agreement with Curis, Inc. (continued)
This arrangement is
accounted for as a joint operation under IFRS 11. Further, the Company has also evaluated the transaction under IAS 28, “Investments
in associates and Joint Ventures,” and believes that the Company does not have any significant influence with respect to
Curis. Accordingly, all of the shares of Curis common stock are classified as available for-sale financial instruments and
are re-measured at fair value at every reporting date.
A loss of Rs.40 arising
from changes in the fair value of such shares of common stock was recorded in other comprehensive income as of September 30, 2017.
23. Collaboration Agreement with Merck Serono
On June 6, 2012, the
Company entered into a collaboration agreement with the biosimilars division of Merck KGaA, Darmstadt, Germany, formerly known
as Merck Serono (hereinafter, “Merck KGaA”), to co-develop a portfolio of biosimilar compounds in oncology, primarily
focused on monoclonal antibodies. The arrangement covers co-development, manufacturing and commercialization of the compounds around
the globe, with some specific country exceptions. During the year ended March 31, 2016, the collaboration agreement was amended
to rearrange and realign the development of compounds, territory rights and royalty payments. Both parties undertook commercialization
based on their respective regional rights as defined in the agreement. The Company leads and supports early product development
towards or including Phase 1 development. Merck KGaA carries out manufacturing of the compounds and leads further development for
its territories. The Company carries out its own development, wherever applicable, for commercialization in its exclusive and co-exclusive
territories. The Company will continue to receive royalty payments upon commercialization by Merck KGaA in its territories.
During the year ended
March 31, 2016, the Company received from Merck KGaA certain amounts relating to its share of development costs and other amounts
linked to the achievement of milestones for the development of compounds under the collaboration agreement, as amended.
Furthermore, during
the three months ended December 31, 2016, the Company received from Merck KGaA payments of U.S.$1 towards achievement of a milestone
for the development of a compound under the collaboration agreement.
On April 24, 2017,
Fresenius SE & Co. KGaA and Merck KGaA announced that Fresenius Kabi will acquire Merck’s Biosimilars business. The transaction
was subject to regulatory approvals and other customary closing conditions. All the approvals from the relevant authorities were
obtained in the month of August 2017. Upon completion of the transaction, the Company’s collaboration will continue
as planned, with Fresenius Kabi. The transaction was completed on September 1, 2017.
24. Receipt of warning letter from the
U.S. FDA
The Company received
a warning letter dated November 5, 2015 from the U.S. FDA relating to current Good Manufacturing Practice (“cGMP”)
deviations at its active pharmaceutical ingredient (“API”) manufacturing facilities at Srikakulam, Andhra Pradesh and
Miryalaguda, Telangana, as well as violations at its oncology formulation manufacturing facility at Duvvada, Visakhapatnam, Andhra
Pradesh. The contents of the warning letter emanated from Form 483 observations that followed inspections of these sites by the
U.S. FDA in November 2014, January 2015 and February-March 2015, respectively.
The warning letter
does not restrict production or shipment of the Company’s products from these facilities. However, unless and until the Company
is able to correct outstanding issues to the U.S. FDA's satisfaction, the U.S. FDA may withhold approval of new products and new
drug applications of the Company, refuse admission of products manufactured at the facilities noted in the warning letter into
the United States, and/or take additional regulatory or legal action against the Company. Any such further action could have a
material and negative impact on the Company’s ongoing business and operations. During the years ended March 31, 2016 and
2017, the U.S. FDA withheld approval of new products from these facilities pending resolution of the issues identified in the warning
letter. To minimize the business impact, the Company transferred certain key products to alternate manufacturing facilities.
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)
24. Receipt of warning letter from the
U.S. FDA (continued)
Subsequent to the
issuance of the warning letter, the Company promptly instituted corrective actions and preventive actions and submitted a comprehensive
response to the warning letter to the U.S. FDA, followed by periodic written updates and in-person meetings with the U.S. FDA.
The U.S. FDA completed the re-inspection of the aforementioned manufacturing facilities in the months of March and April 2017.
During the re-inspections, the U.S. FDA issued three observations with respect to the API manufacturing facility at Miryalaguda,
two observations with respect to the API manufacturing facility at Srikakulam and thirteen observations with respect to the oncology
formulation manufacturing facility. The Company has responded to these observations identified by the U.S. FDA, and believes that
it can resolve them satisfactorily in a timely manner.
In June 2017,
the U.S. FDA issued an establishment inspection report which indicates that the inspection of the Company’s API
manufacturing facility at Miryalaguda is closed.
Inspection of other facilities:
The inspection of
the Company’s CPS facility in Hyderabad, India was completed by the U.S.FDA on September 21, 2017 with zero observations.
The inspection of
the Company’s API facility in Mirfield, United Kingdom was completed by the U.S.FDA on September 15, 2017 and the
Company was issued with a Form 483 with three observations. The Company has responded to these observations identified by the U.S.
FDA, and believes that it can resolve them satisfactorily in a timely manner.
In July 2017, inspection
of the Company’s API facility in Cuernavaca, Mexico was completed by the U.S. FDA with zero observations.
25. Receipt of communication from a
regulatory authority of Bavaria, Germany
In August 2017, the
Company’s German subsidiary betapharm Arzneimittel GmbH received a letter from a regulatory authority of Bavaria, Germany
(the Regierung von Oberbayern, which is the Central Authority for Supervision of Medicinal Products in Bavaria of the Upper Bavarian
government), that the GMP compliance certificate for the Company’s formulations manufacturing facility at Bachupally, Hyderabad
was not renewed as the result of GMP compliance deviations identified in an inspection. Consequently, this manufacturing facility
will not be permitted to export further products to the European Union until there is satisfactory resolution of the issues identified
in the inspection and the facility’s GMP compliance certificate is renewed. The Company has developed corrective action plans
relating to the issues identified in the inspection, and is working diligently to implement them.
Furthermore, on September 7, 2017, the aforementioned regulatory authority concluded an inspection of
the Company’s formulations manufacturing facility at Duvvada, Vishakapatnam, with zero critical and six major observations.
Products manufactured at the facility are not currently exported to the European Union (“EU”). The Company has submitted
a Corrective and Preventive Action Plan (“CAPA”) to the authorities in this regard. The inspector has cautioned that
the facility will receive EU-GMP certification from the Regulator upto November 2018 only when the regulator approves the CAPA.
The facility’s compliance with the CAPA and other applicable regulations will be reviewed again by the Regulator by November 2018
for continuation of the facility’s EU-GMP certification.
26. Venezuela operations
Dr. Reddy's Venezuela,
C.A., a wholly-owned subsidiary of the Company, is primarily engaged in the import of pharmaceutical products from the parent company
and other subsidiaries of the Company and the sale of such products in Venezuela.
Overhaul of the
exchange rate system in Venezuela:
In February 2015, the Venzuelan government launched an overhaul of its then existing exchange
rate system and introduced a new exchange rate mechanism. The Marginal Currency System (known as "SIMADI") was the third
tier in the new three-tier exchange rate regime introduced and allowed for legal trading of the Venezuelan bolivar for foreign
currency with fewer restrictions than other mechanisms in Venezuela (CENCOEX and SICAD). The new second tier (known as “SICAD”)
was introduced with an initial rate of approximately 12 VEF per U.S.$1.00. The first tier (known as “CENCOEX”), the
official exchange rate, was unchanged and sold dollars at 6.3 VEF per U.S.$1.00 for preferential goods.
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)
26. Venezuela operations (continued)
In February 2016,
the Venzuelan government announced further changes to its foreign currency exchange mechanisms, including the devaluation of its
official exchange rate.
|
|
·
|
The CENCOEX preferential rate was replaced
with a new "DIPRO" rate. The DIPRO rate is only available for purchases and sales of essential items. Further, the preferential
exchange rate was devalued from 6.3 VEF per U.S.$1.00 to 10 VEF per U.S.$1.00.
|
|
|
·
|
The SICAD exchange rate mechanism, which
last auctioned USD for 13 VEF per U.S.$1.00, was eliminated.
|
|
|
·
|
The SIMADI exchange rate mechanism was
replaced with a new "DICOM" rate, which governs all transactions not subject to the DIPRO exchange rate and will fluctuate
according to market supply and demand.
|
The above changes became effective as of March 10, 2016.
Impact on the performance of the Company:
Tabulated below was
the impact of the foregoing on the consolidated income statements of the Company for the years ended March 31, 2015 and 2016:
|
|
|
Year ended March 31,
|
|
|
Particulars
|
|
2015
|
|
|
2016
|
|
|
Foreign exchange loss due to currency devaluation and translation of monetary assets and liabilities using SIMADI/DICOM rate recorded under finance expense
|
|
Rs.
|
843
|
|
|
Rs.
|
4,621
|
|
|
Impact of inventory write down and reversal of export incentives recorded under cost of revenues
|
|
|
-
|
|
|
|
341
|
|
|
Impairment of property, plant and equipment recorded under selling, general and administrative expenses
|
|
|
-
|
|
|
|
123
|
|
|
Total
|
|
Rs.
|
843
|
|
|
Rs.
|
5,085
|
|
Update during the six months ended September 30, 2017
In May 2017, the Venezuelan
government announced its intent to bring in a new mechanism for operation of the DICOM rate through an auction system. Subsequently,
the Venezuelan government completed its first auction offering under DICOM, resulting in a DICOM rate of VEF 2,010 per U.S.$1.00.
As of September 30, 2017, the DICOM rate was VEF 3,345 per U.S.$1.00. The Company continues to use the DICOM rate for translating
the monetary assets and liabilities of the Venezuelan subsidiary. As a result, foreign exchange loss of Rs.6 and Rs.34 was recognized
for the three months and six months ended September 30, 2017, respectively.
No revenues were earned
from Venezuela for the three months and six months ended September 30, 2017 (as compared to revenues of Rs.1 and Rs.9 for the three
months and six months ended September 30, 2016, respectively).
Notwithstanding the
ongoing uncertainty, the Company continues to actively engage with the Venezuelan Government and seek approval to repatriate funds
at the preferential rate.
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)
27. Significant asset purchase agreements
Tabulated below are
certain significant asset purchase agreements entered into by the Company during its fiscal years ended March 31, 2015, 2016 and
2017:
Month
and Year
|
|
Counterparty
|
|
Brief
particulars of the asset / agreement
|
|
Useful
life
|
|
Carrying
cost as
on September 30,
2017
|
|
|
October 2014
|
|
Novartis Consumer Health Inc.
|
|
Acquisition of the title and
rights to Habitrol® brand (an over-the-counter nicotine replacement therapy transdermal patch) and to market the product
in the United States, all for an aggregate consideration of Rs.5,097.
|
|
8 years
|
|
Rs.
|
3,209
|
|
|
June 2015
|
|
UCB India Private Limited and affiliates
|
|
Purchase of a select portfolio of established
products business in the territories of India, Nepal, Sri Lanka and Maldives to strengthen our presence in the areas of dermatology,
respiratory and pediatric products, all for a total purchase consideration of Rs.8,000.
|
|
9 to 15 years
|
|
Rs.
|
6,332
|
|
|
September 2015
|
|
Hatchtech Pty Limited
|
|
Purchase of intellectual property rights
of an innovative prescription head lice product, Xeglyze™ lotion. Consideration was an upfront amount of Rs.606 plus
certain milestone-based payments.
|
|
Not available for use yet
|
|
Rs.
|
1,007
|
|
|
November 2015
|
|
Alchemia Limited
|
|
Purchase of worldwide, exclusive intellectual
property rights to fondaparinux sodium, all for an aggregate consideration of Rs.1,158.
|
|
4 years
|
|
Rs.
|
596
|
|
|
March 2016
|
|
XenoPort, Inc.
|
|
Purchase of exclusive U.S. rights for the
development and commercialization of XenoPort’s clinical stage oral new chemical entity, all for an aggregate consideration
of Rs.3,159. The Company plans to develop the in-licensed compound as a potential treatment for moderate-to-severe chronic
plaque psoriasis and for relapsing forms of multiple sclerosis.
|
|
Not available for use yet
|
|
Rs.
|
3,186
|
|
|
March 2016 and September 2017
|
|
Eisai Company Limited
|
|
Acquisition of commercialization rights
for an anti-cancer biologic agent (E7777) from Eisai Company Limited. The consideration was an upfront amount plus
certain milestone-based payments.
|
|
Not available for use yet
|
|
Rs.
|
1,061
|
|
|
May 2016
|
|
Ducere Pharma LLC
|
|
Purchase of certain pharmaceutical brands
to strengthen the Company’s presence in the dermatology, cough-and-cold and pain therapeutic areas forming part of the
Company’s over-the-counter (“OTC”) business in the United States, all for an aggregate consideration of
Rs.1,148.
|
|
15 years
|
|
Rs.
|
1,016
|
|
|
November 2016
|
|
Gland Pharma Limited
|
|
Acquisition of the rights to in-license,
market and distribute eight injectable ANDAs, all for an aggregate consideration of U.S.$5.9.
|
|
Not available for use yet
|
|
Rs.
|
240
|
|
|
June 2016
|
|
Teva Pharmaceutical Industries Limited
|
|
Acquisition of eight ANDAs for U.S.$350.
The acquisition was consummated on August 3, 2016. The acquisition forms part of the Company’s Global Generics segment.
|
|
Majority
products not available for use yet
(1)
|
|
Rs.
|
23,163
|
(2)
|
(1) During
the three months ended June 30, 2017, the Company launched the product for one of the eight ANDAs acquired (ezitimibe and simvastatin
tablets) in the United States of America. The carrying cost of the ANDA is Rs.748 and the useful life is eight years.
(2) Includes
the carrying cost of the product launched.
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)
28. Significant out-licensing agreements
Month
and Year
|
|
Counterparty
|
|
Brief particulars of the agreement
|
|
July 2017
|
|
CHD Biosciences Inc. (“CHD”)
|
|
For the clinical development and commercialization of Company’s Phase III clinical trial candidate, DFA-02. The Company is entitled to receive equity shares in CHD valued at U.S.$30 upon an initial public offering of CHD or, if no initial public offering occurs within 18 months of execution of the agreement, a cash payment of U.S.$30. The Company will also receive additional milestone payments of U.S.$40 upon U.S. FDA approval. In addition, the Company is entitled to royalties on sales and certain other commercial milestone payments with respect to the product. At the time of execution, as the arrangement did not meet all the revenue recognition criteria under IAS 18, no revenue has been recognized for the transaction.
|
|
September 2017
|
|
Encore Dermatology Inc.
|
|
For the future development and commercialization
of DFD-06.
The consideration for out-licensing is
as under:
Upfront and approval milestones: U.S.$20
;
Patent and commercial milestones: U.S.$12.5.
In addition, the Company is entitled to royalties on net sales.
As the arrangement did not meet all the
revenue recognition criteria under IAS 18, no revenue has been recognized for the transaction.
|
29. Change in the functional currency
of a foreign operation
Until July 31, 2016,
the functional currency of the Swiss Subsidiary was determined to be the Indian rupee. During the three months ended September
30, 2016, the Swiss Subsidiary borrowed U.S.$350 from certain institutional lenders to acquire eight ANDAs in the United States
(refer to Note 27 of these interim financial statements for further details). The Company determined that the aforesaid transactions
would have a significant impact on the primary economic environment of the Swiss Subsidiary and, accordingly, the Swiss Subsidiary’s
operating, investing and financing activities would have a greater reliance on the United States dollar.
Accordingly, effective
August 1, 2016, the functional currency of the Swiss Subsidiary was changed to the United States dollar. The change in functional
currency of the Swiss subsidiary was applied prospectively from date of change in accordance with IAS 21, “The Effect of
Changes in Foreign Exchange Rate”.
30. Subsequent events
None.
Item 2. Operating
and Financial review, TREND INFORMATION
The following discussion
and analysis should be read in conjunction with the audited consolidated financial statements, the related cash flow statement,
notes and the Operating and Financial Review and Prospects included in our Annual Report on Form 20-F for the fiscal year ended
March 31, 2017, and the unaudited condensed consolidated interim financial statements included in our report on Form 6-K for the
three months ended June 30, 2017, all of which is on file with the SEC, and the unaudited condensed consolidated interim financial
statements contained in this report on Form 6-K.
This discussion contains
forward-looking statements that involve risks and uncertainties. When used in this discussion, the words “anticipate”,
“believe”, “estimate”, “intend”, “will” and “expect” and other similar
expressions as they relate to us or our business are intended to identify such forward-looking statements. We undertake no obligation
to publicly update or revise the forward-looking statements, whether as a result of new information, future events, or otherwise.
Actual results, performances or achievements could differ materially from those expressed or implied in such forward-looking statements.
Factors that could cause or contribute to such differences include those described under the heading “Risk Factors”
in our Form 20-F. Readers are cautioned not to place reliance on these forward-looking statements that speak only as of their dates.
Section A:
Three months ended September 30, 2017 compared to the three
months ended September 30, 2016
The following table
sets forth, for the periods indicated, financial data along with respective percentages to total revenues and the increase (or
decrease) by item as a percentage of the amount over the comparable period in the previous year.
|
|
|
For the three months ended September 30,
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
Rs. in
millions
|
|
|
% of
Revenues
|
|
|
Rs. in
millions
|
|
|
% of
Revenues
|
|
|
Increase/
(Decrease)
|
|
|
Revenues
|
|
Rs.
|
35,460
|
|
|
|
100.0
|
%
|
|
Rs.
|
35,857
|
|
|
|
100.0
|
%
|
|
|
(1
|
)%
|
|
Gross profit
|
|
|
18,901
|
|
|
|
53.3
|
%
|
|
|
20,097
|
|
|
|
56.0
|
%
|
|
|
(6
|
)%
|
|
Selling, general and administrative expenses
|
|
|
11,032
|
|
|
|
31.1
|
%
|
|
|
11,774
|
|
|
|
32.8
|
%
|
|
|
(6
|
)%
|
|
Research and development expenses
|
|
|
4,175
|
|
|
|
11.8
|
%
|
|
|
5,214
|
|
|
|
14.5
|
%
|
|
|
(20
|
)%
|
|
Other (income)/expense, net
|
|
|
(114
|
)
|
|
|
(0.3
|
)%
|
|
|
(277
|
)
|
|
|
(0.8
|
)%
|
|
|
(59
|
)%
|
|
Results from operating activities
|
|
|
3,808
|
|
|
|
10.7
|
%
|
|
|
3,386
|
|
|
|
9.4
|
%
|
|
|
12
|
%
|
|
Finance (expense)/income, net
|
|
|
(24
|
)
|
|
|
(0.1
|
)%
|
|
|
365
|
|
|
|
1.0
|
%
|
|
|
(107
|
)%
|
|
Share of profit of equity accounted investees, net of tax
|
|
|
92
|
|
|
|
0.3
|
%
|
|
|
84
|
|
|
|
0.2
|
%
|
|
|
11
|
%
|
|
Profit before tax
|
|
|
3,876
|
|
|
|
10.9
|
%
|
|
|
3,835
|
|
|
|
10.7
|
%
|
|
|
1
|
%
|
|
Tax expense
|
|
|
1027
|
|
|
|
2.9
|
%
|
|
|
885
|
|
|
|
2.5
|
%
|
|
|
16
|
%
|
|
Profit for the period
|
|
Rs.
|
2,849
|
|
|
|
8.0
|
%
|
|
Rs.
|
2,950
|
|
|
|
8.2
|
%
|
|
|
(3
|
)%
|
Revenues
Our overall consolidated
revenues were Rs.35,460 million for the three months ended September 30, 2017, a decrease of 1% as compared to Rs.35,857 million
for the three months ended September 30, 2016.
The following table
sets forth, for the periods indicated, our consolidated revenues by segment:
|
|
|
For the three months ended September 30,
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Rs. in
millions
|
|
|
Revenues
% of Total
|
|
|
Rs. in
millions
|
|
|
Revenues
% of Total
|
|
|
Increase/
(Decrease)
|
|
|
Global Generics
|
|
Rs.
|
28,618
|
|
|
|
81
|
%
|
|
Rs.
|
28,995
|
|
|
|
81
|
%
|
|
|
(1
|
)%
|
|
Pharmaceutical Services and Active Ingredients
|
|
|
5,654
|
|
|
|
16
|
%
|
|
|
5,784
|
|
|
|
16
|
%
|
|
|
(2
|
)%
|
|
Proprietary Products
|
|
|
748
|
|
|
|
2
|
%
|
|
|
588
|
|
|
|
2
|
%
|
|
|
27
|
%
|
|
Others
|
|
|
440
|
|
|
|
1
|
%
|
|
|
490
|
|
|
|
1
|
%
|
|
|
(10
|
)%
|
|
Total
|
|
Rs.
|
35,460
|
|
|
|
100
|
%
|
|
Rs.
|
35,857
|
|
|
|
100
|
%
|
|
|
(1
|
)%
|
Segment Analysis
Global Generics
Revenues from our
Global Generics segment were Rs.28,618 million for the three months ended September 30, 2017, a decrease of 1% as compared to Rs.28,995
million for the three months ended September 30, 2016.
After taking into
account the impact of exchange rate fluctuations of the Indian rupee against multiple currencies in the markets in which we operate,
the foregoing decrease in revenues of this segment was attributable to the following factors:
|
|
·
|
an increase of approximately 10% resulting
from the introduction of new products during the intervening period;
|
|
|
·
|
an increase of approximately 1% resulting
from a net increase in the sales volume of existing products in this segment; and
|
|
|
·
|
the foregoing was offset by a decrease
of approximately 12% resulting from the net impact of changes in sales prices of the products in this segment.
|
North America (the
United States and Canada)
: Our Global Generics segment’s revenues from North America (the United States and Canada) were
Rs.14,318 million for the three months ended September 30, 2017, a decrease of 11% as compared to the three months ended September
30, 2016. In U.S. dollar absolute currency terms (i.e., U.S. dollars without taking into account the effect of currency exchange
rates), such revenues decreased by 10% in the three months ended September 30, 2017 as compared to the three months ended September
30, 2016.
This decrease in revenues
was largely attributable to the following:
|
|
·
|
price erosion, coupled with a decrease
in sales volumes, of certain of our existing products of this segment; and
|
|
|
·
|
the foregoing was partially offset by
revenues from new products launched between October 1, 2016 and September 30, 2017, such as progesterone, ezetimibe and
simvastatin and liposomal doxorubicin.
|
During the three months
ended September 30, 2017, we launched four new products in North America (the United States and Canada). These new products were
sevelamer carbonate tablets, cefixime OS (oral suspension), buproprion XL (extended release) and metaxalone tablets. No revenues
were recorded from sevelamer carbonate tablets, as this product was launched towards the end of September, 2017.
During the three months
ended September 30, 2017, we made 4 new ANDA filings and 1 new NDA filing under the section 505(b)(2) route with the U.S.FDA. As
of September 30, 2017, our cumulative filings were 263 which includes 4 NDA filings under section 505(b)(2) and 259 ANDA filings.
These 259 ANDA filings include 8 ANDAs acquired from Teva Pharmaceutical Industries Limited (“Teva”). Out of these
filings, we had 103 filings pending approval at the U.S. FDA, which includes 3 NDA filings under section 505(b)(2) and 100 ANDA
filings. Out of these 100 ANDA filings, 60 are Paragraph IV filings and we believe that we are the first to file with respect to
28 of these filings. Further, these 100 ANDAs which are pending for approval include 6 ANDAs acquired from Teva, of which 5 are
Paragraph IV filings.
India:
Our
Global Generics segment’s revenues from India for the three months ended September 30, 2017 were Rs.6,370 million, an increase
of 2% as compared to the three months ended September 30, 2016. This growth was largely attributable to an increase in sales volumes
of certain of our existing products and revenues from new brands launched in India between October 1, 2016 and September 30, 2017,
which was partially offset by the decrease in sales prices of certain of our existing products. Prior to the transition to India’s
new Goods and Service Tax (“GST”) regime, which became effective on July 1, 2017, the excise duty amount
was recorded in revenues with a corresponding amount recorded in the cost of revenues. For periods effective on or after July 1,
2017, excise duty has been subsumed in the GST, and is not recorded in revenues or cost of revenues. Consequently, the revenues
reported for periods subsequent to the GST transition no longer reflect excise duty, and the reported growth would therefore be
lower.
According to IMS Health
in its Moving Quarterly Total report for the three months ended September 30, 2017, our secondary sales in India declined by 1.1%
during such period, as compared to the India pharmaceutical market’s decline of 0.8% during such period. During the three
months ended September 30, 2017, we launched 8 new brands in India.
Emerging Markets
:
Our Global Generics segment’s revenues from “Emerging Markets” (which is comprised of Russia, other countries
of the former Soviet Union, Romania and certain other countries from our “Rest of the World” markets, primarily, South
Africa and Australia) for the three months ended September 30, 2017 were Rs.5,506 million, an increase of 14% as compared to the
three months ended September 30, 2016. The foregoing revenue increase was largely attributable to increased revenues from Russia,
as described below.
Russia
: Our
Global Generics segment’s revenues from Russia for the three months ended September 30, 2017 were Rs.3,218 million, an increase
of 20% as compared to the three months ended September 30, 2016. In Russian rouble absolute currency terms (i.e., Russian roubles
without taking into account the effect of currency exchange rates), such revenues increased by 13% for the three months ended September
30, 2017 as compared to the three months ended September 30, 2016. Our over-the-counter (“OTC”) division’s
revenues from Russia for the three months ended September 30, 2017 were 39% of our total revenues from Russia. This increase
was mainly on account of an increase in the sales volume of our existing products and due to new products we launched between October
1, 2016 and September 30, 2017.
According to IMS Health,
as per its report for the three months ended September 30, 2017, our sales value (in Russian roubles) growth and volume growth
from Russia, as compared to the Russian pharmaceutical market sales value (in Russian roubles) growth and volume growth for the
three months ended September 30, 2017 was as follows:
|
|
|
For the three months ended September 30, 2017
|
|
|
|
|
Dr. Reddy's Laboratories
|
|
|
Russian pharmaceutical market
|
|
|
|
|
Sales value
|
|
|
Volume
|
|
|
Sales value
|
|
|
Volume
|
|
|
Prescription (Rx)
|
|
|
(5.31
|
)%
|
|
|
(6.69
|
)%
|
|
|
4.11
|
%
|
|
|
(1.63
|
)%
|
|
Over-the-counter (OTC)
|
|
|
2.51
|
%
|
|
|
(0.03
|
)%
|
|
|
(0.55
|
)%
|
|
|
(5.47
|
)%
|
|
Total (Rx + OTC)
|
|
|
(2.43
|
)%
|
|
|
(4.90
|
)%
|
|
|
1.62
|
%
|
|
|
(4.36
|
)%
|
Other countries
of the former Soviet Union and Romania:
Our Global Generics segment’s revenues from other countries of the former Soviet
Union and Romania were Rs.921 million for the three months ended September 30, 2017, an increase of 3% as compared to the three
months ended September 30, 2016. This increase was largely attributable to the increase in sales volumes of our existing major
brands and revenues from new products launched between October 1, 2016 and September 30, 2017.
“Rest of
the World” Markets
: We refer to all markets of this segment other than North America (the United States and Canada),
Europe, Russia and other countries of the former Soviet Union, Romania and India as our “Rest of the World” markets.
Our Global Generics segment’s revenues from our “Rest of the World” markets were Rs.1,367 million for the three
months ended September 30, 2017, an increase of 9% as compared to the three months ended September 30, 2016. This increase was
largely due to higher contribution from new markets.
Europe:
Our
Global Generics segment’s revenues from Europe are primarily derived from Germany, the United Kingdom and our out-licensing
business across Europe. Such revenues were Rs.2,424 million for the three months ended September 30, 2017, an increase of 37% as
compared to the three months ended September 30, 2016. This increase was primarily on account of the increase in sales volume of
existing products along with new products launched between October 1, 2016 and September 30, 2017.
Pharmaceutical Services and Active
Ingredients (“PSAI”)
Our PSAI segment’s
revenues for the three months ended September 30, 2017 were Rs.5,654 million, a decrease of 2% as compared to the three months
ended September 30, 2016. After taking into account the impact of exchange rate fluctuations of the Indian rupee against multiple
currencies in the markets in which we operate, this decrease was largely attributable to:
|
|
·
|
increased sales of active pharmaceutical
ingredients for the three months ended September 30, 2017, primarily attributable to increased sales volumes of existing products,
which increased our PSAI segment’s revenues by approximately 2%; and
|
|
|
·
|
the foregoing was offset by decreased
customer orders for our pharmaceutical development services, which decreased our PSAI segment’s revenues by approximately
4%.
|
During the three months ended September
30, 2017, we filed 16 Drug Master Files (“DMFs”) worldwide. Cumulatively, our total worldwide DMFs as of September
30, 2017, were 780, including 203 DMFs in the United States.
Gross Profit
Our total gross profit
was Rs.18,901 million for the three months ended September 30, 2017, representing 53.3% of our revenues for that period, as compared
to Rs.20,097 million for the three months ended September 30, 2016, representing 56.0% of our revenues for that period.
The following table sets forth,
for the period indicated, our gross profits by segment:
|
|
|
For the three months ended September 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
(Rs. in millions)
|
|
|
|
|
Gross
Profit
|
|
|
% of Segment
Revenue
|
|
|
Gross
Profit
|
|
|
% of Segment
Revenue
|
|
|
Global Generics
|
|
Rs.
|
16,936
|
|
|
|
59.2
|
%
|
|
Rs.
|
18,067
|
|
|
|
62.3
|
%
|
|
Pharmaceutical Services and Active Ingredients
|
|
|
1,107
|
|
|
|
19.6
|
%
|
|
|
1,271
|
|
|
|
22.0
|
%
|
|
Proprietary Products
|
|
|
633
|
|
|
|
84.5
|
%
|
|
|
507
|
|
|
|
86.3
|
%
|
|
Others
|
|
|
225
|
|
|
|
51.1
|
%
|
|
|
252
|
|
|
|
51.5
|
%
|
|
Total
|
|
Rs.
|
18,901
|
|
|
|
53.3
|
%
|
|
Rs.
|
20,097
|
|
|
|
56.0
|
%
|
After taking into
account the impact of the exchange rate fluctuations of the Indian rupee against multiple currencies in the markets in which we
operate, the gross profits from our Global Generics segment decreased to 59.2% for the three months ended September 30, 2017 from
62.3% for the three months ended September 30, 2016. This decrease was primarily on account of lower realizations due to increased
competition in some of our key products, primarily in North America. Consequently, there was a decrease in the proportion of our
sales of higher gross margin products and an increase in the proportion of our sales of lower gross margin products.
The gross profits
from our PSAI segment decreased to 19.6% for the three months ended September 30, 2017, from 22.0% for the three months ended September
30, 2016. This decrease was primarily on account of increased price erosion coupled with a decrease in the proportion of our sales
of higher gross margin products and an increase in the proportion of our sales of lower gross margin products during the three
months ended September 30, 2017.
Selling, general and administrative
expenses
Our selling, general
and administrative expenses were Rs.11,032 million for the three months ended September 30, 2017, a decrease of 6% as compared
to Rs.11,774 million for the three months ended September 30, 2016. After taking into account the impact of exchange rate fluctuations
of the Indian rupee against multiple currencies in the markets in which we operate, this decrease was largely attributable to the
following:
|
|
·
|
decreased legal and professional expenses,
which decreased our selling, general and administrative expenses by approximately 2%; and
|
|
|
·
|
decreased sales and marketing expenses,
which decreased our selling, general and administrative expenses by approximately 4%. This decrease was primarily on account of
the provision of Rs.344 million for potential liability imposed by the National Pharmaceutical Pricing Authority for sales allegedly
in excess of the notified selling prices (related to the petition filed by the Indian Pharmaceutical Alliance) accrued during the
three months ended September 30, 2016; no such costs were accrued during the three months ended September 30, 2017.
|
As a proportion of
our total revenues, our selling, general and administrative expenses decreased to 31.1% for the three months ended September 30,
2017 from 32.8% for the three months ended September 30, 2016.
Research and development expenses
Our research and development
expenses were Rs.4,175 million for the three months ended September 30, 2017, a decrease of 20% as compared to Rs.5,214 million
for the three months ended September 30, 2016. The decrease was primarily on account of deferrals in certain milestone related
payments to subsequent quarters of the year ending March 31, 2018. Our focus continues on building our pipeline of complex generics,
biosimilars and differentiated products.
As a proportion of
our total revenues, our research and development expenses decreased to 11.8% for the three months ended September 30, 2017 from
14.5% for the three months ended September 30, 2016.
Other (income)/expense, net
Our net other income
was Rs.114 million for the three months ended September 30, 2017, as compared to net other income of Rs.277 million for the three
months ended September 30, 2016.
Finance (expense)/income, net
Our net finance expense
was Rs.24 million for the three months ended September 30, 2017, as compared to net finance income of Rs.365 million for the three
months ended September 30, 2016. The decrease in net finance income was due to the following:
|
|
·
|
net interest expense of Rs.159 million
for the three months ended September 30, 2017, as compared to net interest expense of Rs.49 million for the three months ended
September 30, 2016;
|
|
|
·
|
net foreign exchange gain of Rs.47 million
for the three months ended September 30, 2017, as compared to net foreign exchange gain of Rs.37 million for the three months ended
September 30, 2016; and
|
|
|
·
|
profit on sale of investments of Rs.88
million for the three months ended September 30, 2017, as compared to profit on sale of investments of Rs.377 million for the three
months ended September 30, 2016.
|
Profit before tax
As a result of the
above, our profit before tax was Rs.3,876 million for the three months ended September 30, 2017, an increase of 1% as compared
to Rs.3,835 million for the three months ended September 30, 2016.
Tax expense
Our consolidated weighted
average tax rate was 26.5% for the three months ended September 30, 2017, as compared to 23.1% for the three months ended September
30, 2016. The effective rate of tax for the three months ended September 30, 2016 was lower primarily on account of tax
deductions that we claimed on sales of investments.
Our tax expense was
Rs.1,027 million for the three months ended September 30, 2017, as compared to Rs.885 million for the three months ended September
30, 2016.
Profit for the period
As a result of the
above, our net profit was Rs.2,849 million for the three months ended September 30, 2017, representing 8.0% of our total revenues
for such period, as compared to Rs.2,950 million for the three months ended September 30, 2016, representing 8.2% of our total
revenues for such period.
Section B:
Six months ended
September 30, 2017 compared to the six months ended September 30, 2016
The following table
sets forth, for the periods indicated, financial data as percentages of total revenues and the increase (or decrease) by item as
a percentage of the amount over the comparable period in the previous year.
|
|
|
For the six months ended September 30,
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Rs. in
millions
|
|
|
% of
Revenues
|
|
|
Rs. in
millions
|
|
|
% of
Revenues
|
|
|
Increase/
(Decrease)
|
|
|
Revenues
|
|
Rs.
|
68,619
|
|
|
|
100.0
|
%
|
|
Rs.
|
68,202
|
|
|
|
100.0
|
%
|
|
|
1
|
%
|
|
Gross profit
|
|
|
35,998
|
|
|
|
52.5
|
%
|
|
|
38,275
|
|
|
|
56.1
|
%
|
|
|
(6
|
)%
|
|
Selling, general and administrative expenses
|
|
|
22,795
|
|
|
|
33.2
|
%
|
|
|
24,058
|
|
|
|
35.3
|
%
|
|
|
(5
|
)%
|
|
Research and development expenses
|
|
|
9,250
|
|
|
|
13.5
|
%
|
|
|
10,016
|
|
|
|
14.7
|
%
|
|
|
(8
|
)%
|
|
Other (income) / expense, net
|
|
|
(308
|
)
|
|
|
(0.4
|
)%
|
|
|
(373
|
)
|
|
|
(0.5
|
)%
|
|
|
(17
|
)%
|
|
Results from operating activities
|
|
|
4,261
|
|
|
|
6.2
|
%
|
|
|
4,574
|
|
|
|
6.7
|
%
|
|
|
(7
|
)%
|
|
Finance (expense) / income, net
|
|
|
197
|
|
|
|
0.3
|
%
|
|
|
810
|
|
|
|
1.2
|
%
|
|
|
(76
|
)%
|
|
Share of profit of equity accounted investees, net of tax
|
|
|
190
|
|
|
|
0.3
|
%
|
|
|
158
|
|
|
|
0.2
|
%
|
|
|
20
|
%
|
|
Profit before tax
|
|
|
4,648
|
|
|
|
6.8
|
%
|
|
|
5,542
|
|
|
|
8.1
|
%
|
|
|
(16
|
)%
|
|
Tax expense
|
|
|
1,208
|
|
|
|
1.8
|
%
|
|
|
1,329
|
|
|
|
1.9
|
%
|
|
|
(9
|
)%
|
|
Profit for the period
|
|
Rs.
|
3,440
|
|
|
|
5.0
|
%
|
|
Rs.
|
4,213
|
|
|
|
6.2
|
%
|
|
|
(18
|
)%
|
Revenues
Our overall consolidated
revenues were Rs.68,619 million for the six months ended September 30, 2017, an increase of 1% as compared to Rs.68,202 million
for the six months ended September 30, 2016.
The following table
sets forth, for the periods indicated, our consolidated revenues by segment:
|
|
|
For the six months ended September 30,
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
Rs. in
millions
|
|
|
Revenues %
of Total
|
|
|
Rs. in
millions
|
|
|
Revenues %
of Total
|
|
|
Increase/
(Decrease)
|
|
|
Global Generics
|
|
Rs.
|
56,073
|
|
|
|
82
|
%
|
|
Rs.
|
55,633
|
|
|
|
82
|
%
|
|
|
1
|
%
|
|
Pharmaceutical Services and Active Ingredients
|
|
|
10,305
|
|
|
|
15
|
%
|
|
|
10,477
|
|
|
|
15
|
%
|
|
|
(2
|
)%
|
|
Proprietary Products
|
|
|
1,260
|
|
|
|
2
|
%
|
|
|
1,208
|
|
|
|
2
|
%
|
|
|
4
|
%
|
|
Others
|
|
|
981
|
|
|
|
1
|
%
|
|
|
884
|
|
|
|
1
|
%
|
|
|
11
|
%
|
|
Total
|
|
Rs.
|
68,619
|
|
|
|
100
|
%
|
|
Rs.
|
68,202
|
|
|
|
100
|
%
|
|
|
1
|
%
|
Segment Analysis
Global Generics
Revenues from our
Global Generics segment were Rs.56,073 million for the six months ended September 30, 2017, an increase of 1% as compared to Rs.55,633
million for the six months ended September 30, 2016.
After taking into
account the impact of exchange rate fluctuations of the Indian rupee against multiple currencies in the markets in which we operate,
the foregoing increase in revenues of this segment was attributable to the following factors:
|
|
·
|
a decrease of approximately 10% resulting
from the net impact of changes in sales prices of the products in this segment;
|
|
|
·
|
an increase of approximately 10% resulting
from the introduction of new products during the intervening period and
|
|
|
·
|
an increase of approximately 1% resulting
from a net increase in the sales volume of existing products in this segment.
|
North America (the
United States and Canada):
Our Global Generics segment’s revenues from North America (the United States and Canada) for
the six months ended September 30, 2017 were Rs.29,262 million, a decrease of 8% as compared to the six months ended September
30, 2016. In U.S. dollar absolute currency terms (i.e., U.S. dollars without taking into account the effect of currency exchange
rates), such revenues decreased by 7% in the six months ended September 30, 2017 as compared to the six months ended September
30, 2016.
During the six months
ended September 30, 2017, we launched eight new products in North America (the United States and Canada). These new products include
ezetimibe and simvastatin, liposomal doxorubicin, bivalirudin injection, sevelamer carbonate tablets, cefixime OS (oral suspension),
bupropion XL (extended release) and metaxalone tablets. No revenues were recorded from sevelamer carbonate tablets, as this product
was launched towards the end of September 2017.
India
: Our
Global Generics segment’s revenues from India were Rs.11,058 million for the six months ended September 30, 2017, a
decrease of 4% as compared to the six months ended September 30, 2016. During the six months ended September 30, 2017, we launched
11 new brands in India.
During the three months
ended June 30, 2017, there was a significant reduction in the sales volumes of our existing products, as our customers in India
reduced their inventory holdings in anticipation of the transition to India’s new Goods and Service Tax (“GST”)
regime, which became effective on July 1, 2017.
Prior to the transition
to the GST regime, excise duty amount was recorded in revenues with a corresponding amount recorded in the cost of revenues. For
subsequent periods, excise duty has been subsumed in the GST, and is not recorded in revenues or cost of revenues. Consequently,
the revenues reported for periods subsequent to the GST transition no longer reflect excise duty, and the reported growth would
therefore be lower.
Emerging Markets
:
Our Global Generics segment’s revenues from “Emerging Markets” (which is comprised of Russia, other countries
of the former Soviet Union, Romania and certain other countries from our “Rest of the World” markets, primarily South
Africa and Australia) for the six months ended September 30, 2017 were Rs.11,253 million, an increase of 24% as compared to the
six months ended September 30, 2016.
Russia
: Our
Global Generics segment’s revenues from Russia were Rs.6,679 million for the six months ended September 30, 2017, an
increase of 33% as compared to the six months ended September 30, 2016. In Russian rouble absolute currency terms (i.e., Russian
roubles without taking into account the effect of currency exchange rates), such revenues increased by 21% for the six months ended
September 30, 2017 as compared to the six months ended September 30, 2016. Our over-the-counter (“OTC”) division’s
revenues from Russia for the six months ended September 30, 2017 were 37% of our total revenues from Russia, and we intend to further
strengthen our OTC sales by continuous branding efforts.
According to IMS Health,
as per its report for the six months ended September 30, 2017, our sales value (in Russian roubles) growth and volume growth from
Russia, as compared to the Russian pharmaceutical market sales value (in Russian roubles) growth and volume growth for the six
months ended September 30, 2017 was as follows:
|
|
|
For the six months ended September 30, 2017
|
|
|
|
|
Dr. Reddy's Laboratories
|
|
|
Russian pharmaceutical market
|
|
|
|
|
Sales value
|
|
|
Volume
|
|
|
Sales value
|
|
|
Volume
|
|
|
Prescription (Rx)
|
|
|
(5.31
|
)%
|
|
|
(6.69
|
)%
|
|
|
4.11
|
%
|
|
|
(1.63
|
)%
|
|
Over-the-counter (OTC)
|
|
|
2.51
|
%
|
|
|
(0.03
|
)%
|
|
|
(0.55
|
)%
|
|
|
(5.47
|
)%
|
|
Total (Rx + OTC)
|
|
|
(2.43
|
)%
|
|
|
(4.90
|
)%
|
|
|
1.62
|
%
|
|
|
(4.36
|
)%
|
Other Countries
of former Soviet Union and Romania
: Our Global Generics segment’s revenues from other countries of the former Soviet
Union and Romania were Rs.1,782 million for the six months ended September 30, 2017, an increase of 13% as compared to the six
months ended September 30, 2016.
“Rest of
the World” Markets
: We refer to all markets of this segment other than North America (the United States and Canada),
Europe, Russia, India and other countries of the former Soviet Union and Romania as our “Rest of the World” markets.
Our Global Generics segment’s revenues from our “Rest of the World” markets were Rs.2,791 million for the six
months ended September 30, 2017, an increase of 11% as compared to the six months ended September 30, 2016. This increase is majorly
attributable towards increase in sales in new markets for the six months ended September 30, 2017.
Europe
: Our
Global Generics segment’s revenues from Europe were Rs.4,500 million for the six months ended September 30, 2017, an increase
of 33% as compared to the six months ended September 30, 2016. The increase is largely attributable to sales of new products, such
as entacavir, sildenafil and tenofovir, launched between October 1, 2016 and September 30, 2017.
Pharmaceutical Services and Active
Ingredients (“PSAI”)
Our PSAI segment’s
revenues for the six months ended September 30, 2017 were Rs.10,305 million, a decrease of 2% as compared to the six months ended
September 30, 2016. After taking into account the impact of exchange rate fluctuations of the Indian rupee against the multiple
currencies in the markets in which we operate, this decrease was largely attributable to:
|
|
·
|
increased sales of active pharmaceutical
ingredients for the six months ended September 30, 2017, primarily attributable to increased sales volumes of existing products,
partially offset by net impact of changes in sales prices of existing products, which together increased our PSAI segment’s
revenues by approximately 1%; and
|
|
|
·
|
the foregoing was offset by decreased
customer orders in our pharmaceutical development services for certain products provided to innovator companies, which decreased
our PSAI segment’s revenues by approximately 3%.
|
Gross Profit
Our total gross profit
was Rs.35,998 million for the six months ended September 30, 2017, representing 52.5% of our revenues for that period, as compared
to Rs.38,275 million for the six months ended September 30, 2016, representing 56.1% of our revenues for that period.
|
|
|
For the six months ended September 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
Rs. in millions
|
|
|
|
|
Gross Profit
|
|
|
% of Segment
Revenue
|
|
|
Gross Profit
|
|
|
% of Segment
Revenue
|
|
|
Global Generics
|
|
Rs.
|
32,772
|
|
|
|
58.4
|
%
|
|
Rs.
|
34,406
|
|
|
|
61.8
|
%
|
|
Pharmaceutical Services and Active Ingredients
|
|
|
1,640
|
|
|
|
15.9
|
%
|
|
|
2,402
|
|
|
|
22.9
|
%
|
|
Proprietary Products
|
|
|
1,051
|
|
|
|
83.4
|
%
|
|
|
1,032
|
|
|
|
85.4
|
%
|
|
Others
|
|
|
535
|
|
|
|
54.5
|
%
|
|
|
435
|
|
|
|
49.2
|
%
|
|
Total
|
|
Rs.
|
35,998
|
|
|
|
52.5
|
%
|
|
Rs.
|
38,275
|
|
|
|
56.1
|
%
|
After taking into
account the impact of the exchange rate fluctuations of the Indian rupee against multiple currencies in the markets in which we
operate, the gross profits from our Global Generics segment decreased to 58.4% for the six months ended September 30, 2017 from
61.8% for the six months ended September 30, 2016. This decrease was primarily on account of lower realizations due to increased
competition in some of our key products. Consequently, there was a decrease in the proportion of sales of our higher gross margin
products and an increase in the proportion of sales of our lower gross margin products.
The gross profits
from our PSAI segment decreased to 15.9% for the six months ended September 30, 2017, from 22.9% for the six months ended September
30, 2016. This decrease was primarily on account of price erosion for the six months ended September 30, 2017.
Selling, general and administrative
expenses
Our selling, general
and administrative expenses were Rs.22,795 million for the six months ended September 30, 2017, a decrease of 5% as compared to
Rs.24,058 million for the six months ended September 30, 2016. After taking into account the impact of exchange rate fluctuations
of the Indian rupee against multiple currencies in the markets in which we operate, this decrease was largely attributable to the
following:
|
|
·
|
decreased sales and marketing expenses,
which decreased our selling, general and administrative expenses by approximately 2%. This decrease was primarily on account of
the provision of Rs.344 million for potential liability imposed by the National Pharmaceutical Pricing Authority for sales allegedly
in excess of the notified selling prices (related to the petition filed by the Indian Pharmaceutical Alliance) accrued for the
six months ended September 30, 2016; no such costs were incurred for the six months ended September 30, 2017; and
|
|
|
·
|
decreased legal and professional expenses
by 3%, primarily on account of remediation activities related to the warning letter received from the U.S. FDA for three of our
manufacturing facilities in India accrued for the six months ended September 30, 2016; no such costs were incurred for the six
months ended September 30, 2017.
|
As a proportion of
our total revenues, our selling, general and administrative expenses decreased to 33.2% for the six months ended September 30,
2017 from 35.3% for the six months ended September 30, 2016.
Research and development expenses
Our research and development
costs were Rs.9,250 million for the six months ended September 30, 2017, a decrease of 8% as compared to Rs.10,016 million for
the six months ended September 30, 2016. The decrease was primarily on account of deferment in some of the milestone related payments
to subsequent quarters of the financial year. Our focus continues on building our pipeline of complex generics, biosimilars and
differentiated products.
Other (income) / expense, net
Our other income
was Rs.308 million for the six months ended September 30, 2017, as compared to other income of Rs.373 million for the six months
ended September 30, 2016.
Finance (expense) / income, net
Our net finance income
was Rs.197 million for the six months ended September 30, 2017, as compared to net finance income of Rs.810 million for the six
months ended September 30, 2016. The decrease in net finance income was attributable to:
|
|
·
|
net interest expense of Rs.231 million
for the six months ended September 30, 2017, as compared to net interest income of Rs.74 million for the six months ended
September 30, 2016;
|
|
|
·
|
net foreign exchange gain of Rs.57 million
for the six months ended September 30, 2017, as compared to net foreign exchange gain of Rs.73 million for the six months ended
September 30, 2016; and
|
|
|
·
|
profit on sale of investments of Rs.371
million for the six months ended September 30, 2017, as compared to profit on sale of investments of Rs.663 million for the six
months ended September 30, 2016.
|
Profit before tax
As a result of the
above, our profit before tax was Rs.4,648 million for the six months ended September 30, 2017, a decrease of 16% as compared to
Rs.5,542 million for the six months ended September 30, 2016.
Tax expense
Our consolidated weighted
average tax rate was 25.9% for the six months ended September 30, 2017, as compared to 23.9% for the six months ended September
30, 2016.
Our tax expense was
Rs.1,208 million for the six months ended September 30, 2017, as compared to Rs.1,329 million for the six months ended September
30, 2016.
Profit for the period
As a result of the
above, our net profit was Rs.3,440 million for the six months ended September 30, 2017, representing 5.0% of our total revenues
for such period, as compared to Rs.4,213 million for the six months ended September 30, 2016, representing 6.2% of our total revenues
for such period.
Item
3. Liquidity and Capital ResourceS
We have primarily
financed our operations through cash flows generated from operations and a mix of long-term and short-term borrowings. Our principal
liquidity and capital needs are for making investments, the purchase of property, plant and equipment, regular business operations
and research and development.
Our principal sources
of short-term liquidity are internally generated funds and short-term borrowings, which we believe are sufficient to meet our working
capital requirements. We borrowed U.S.$150 million during the year ended March 31, 2014, which was to be repaid in five quarterly
installments beginning February 2018. During the three months ended December 31, 2016, we entered into a financing arrangement
with certain financial institutions to refinance this borrowing of U.S.$150 million. As per the repayment schedule applicable to
the refinanced borrowing, we repaid U.S.$75 million on November 28, 2016 (refer to Note 12 to our interim financial statements
for further details). These loans were incurred primarily to repay some of our then existing short-term borrowings and to meet
anticipated capital expenditures over the near term.
During the three
months ended September 30, 2016, through Dr. Reddy’s Laboratories, SA, one of our subsidiaries in Switzerland (the
“Swiss Subsidiary”), we borrowed U.S.$350 million of short-term borrowings from certain institutional lenders at
an interest rate ranging from Libor plus 0.45% to 0.60% per annum. These loans were borrowed for the purpose of funding the
acquisition of eight Abbreviated New Drug Applications (“ANDAs”) from Teva Pharmaceutical Industries Limited in
the United States (refer to Note 27 of these interim financial statements for additional details). During the three months
ended June 30, 2017, the Swiss Subsidiary repaid the entire short-term borrowing of U.S.$350 million.
During the three months
ended June 30, 2017, through our Swiss Subsidiary, we borrowed an additional U.S.$250 million, of which U.S.$200 million is required
to be repaid in one balloon installment due on the 60 month anniversary of the date of the loan, and the remaining U.S.$50 million
is repayable in five equal quarterly installments of U.S.$10 million each, commencing at the end of the 30 month anniversary and
continuing until the 42 month anniversary of the date of the loan.
During the three months ended June 30, 2017, through Reddy Holding GmbH, one of our subsidiaries in Germany,
we borrowed EUR 42 million, which was required to be repaid in three equal installments due at the end of the 2
nd
, 3
rd
and 4
th
year anniversaries of the date of the loan.
The following table
summarizes our statements of cash flows for the periods presented:
|
|
|
For the six months ended September 30,
|
|
|
|
|
2017
|
|
|
2017
|
|
|
2016
|
|
|
|
|
(U.S.$ in millions, Rs. in millions)
|
|
|
|
|
Convenience
translation into U.S.$.
|
|
|
|
|
|
|
|
|
Net cash from/(used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
U.S.$
|
72
|
|
|
Rs.
|
4,728
|
|
|
Rs.
|
7,763
|
|
|
Investing activities
|
|
|
(84
|
)
|
|
|
(5,456
|
)
|
|
|
(17,292
|
)
|
|
Financing activities
|
|
|
(10
|
)
|
|
|
(646
|
)
|
|
|
7,224
|
|
|
Net increase/(decrease) in cash and cash equivalents
|
|
U.S.$
|
(21
|
)
|
|
Rs.
|
(1,374
|
)
|
|
Rs.
|
(2,305
|
)
|
In addition to cash,
inventory and accounts receivable, our unused sources of liquidity included Rs.21,300 million available in credit under revolving
credit facilities with banks as of September 30, 2017. We had no other material unused sources of liquidity as of September 30,
2017.
Cash Flows from Operating Activities
The result of operating
activities was a net cash inflow of Rs.4,728 million for the six months ended September 30, 2017, as compared to a cash
inflow of Rs.7,763 million for the six months ended September 30, 2016.
The decrease in net
cash inflow of Rs. 3,035 million is primarily due to increase in working capital requirements and decrease in our earnings, as
described below.
The change in cash
from operating activities was primarily on account of the following:
|
|
·
|
an increase in working capital,
primarily due to an increase in our trade receivables as of September 30, 2017, on account of (a) changes in the customer mix
(i.e., an increase in the proportion of receivables from our customers with longer credit periods, as further discussed
below); and (b) an increase in the proportion of trade receivables in our API business which were not due for payment as of
September 30, 2017; and
|
|
|
·
|
a decline in our earnings for the six
months ended September 30, 2017, due to increased competition for key products in our North America (the United States and Canada)
generics business and increased price erosion attributable to consolidation among distributors and retailers.
|
Our average days’
sales outstanding (“DSO”) as at September 30, 2017, March 31, 2017 and September 30, 2016, computed based on the sales
for the three months then ended, were 109 days, 96 days and 95 days, respectively. The increase in our DSO was primarily on account
of (a) changes in the mix of our receivables, due to increase in the proportion of receivables from our customers with longer credit
periods in the United States; and (b) higher exchange rates as of September 30, 2017 as compared to the exchange rates prevailing
during the three months ended September 30, 2017, which increased our trade receivables higher than the corresponding revenues.
Cash Flows from Investing Activities
Our investing activities
resulted in a net cash outflow of Rs.5,456 million as compared to a net cash outflow of Rs.17,292 million for the six months ended
September 30, 2017 and 2016, respectively. This decrease in net cash outflow of Rs.11,899 million was primarily due to:
|
|
·
|
a net decrease of Rs.28,478 million in
cash outflow is primarily on account of reduced outflow towards acquisition of intangible assets and property, plant and equipment
in the six months ended September 30, 2017 as compared to the six months ended September 30, 2016. Acquisition during the
six months ended September 30, 2016 primarily consist of:
|
|
|
o
|
Rs.23,366 million (U.S.$350 million) paid to Teva Pharmaceutical Industries Limited (“Teva”)
to acquire eight Abbreviated New Drug Applications (“ANDAs”) in the United States forming part of our Global Generics
segment (refer to Note 27 of these interim financial statements for further details);
|
|
|
o
|
Rs.3,159 million (U.S.$47.5 million) paid to XenoPort, Inc. for the acquisition of exclusive U.S.
rights for the development and commercialization of a clinical stage oral new chemical entity which forms a part of our Proprietary
Products segment during the three months ended June 30, 2016 (refer to Note 27 of these interim financial statements for further
details); and
|
|
|
o
|
Rs.1,148 million (U.S.$17 million) paid to Ducere Pharma LLC for purchase of portfolio of OTC brands
which form a part of our Global Generics segment during the three months ended June 30, 2016 (refer to Note 27 of these interim
financial statements for further details).
|
|
|
·
|
the foregoing was partially offset by
a decrease in net cash inflow on account of sale of investments in mutual funds and redemption of fixed deposits having an original
maturity of more than three months by Rs.16,513 million for the six months ended September 30, 2017, as compared to the six months
ended September 30, 2016.
|
Cash Flows from Financing Activities
Our financing activities
resulted in a net cash outflow of Rs.646 million, as compared to a net cash inflow of Rs.7,224 million for the six months
ended September 30, 2017 and 2016, respectively.
During the six months
ended September 30, 2017, there was a decrease in net short-term borrowings by Rs.14,961 million, primarily on account of
repayment of Rs.23,222 million by our Swiss Subsidiary, which was offset by an increase in short term borrowings of Rs.18,991 million
incurred by our subsidiaries in Switzerland and Germany.
During the three months
ended June 30, 2016, we bought back and extinguished 5,077,504 equity shares for an aggregate purchase price of Rs.15,694 million
(refer to note 15 of these interim financial statements for further details).
Principal Debt Obligations
The following table
provides a list of our principal debt obligations (excluding finance lease obligations) outstanding as of September 30, 2017:
|
Debt
|
|
Principal
Amount
|
|
|
Currency
(1)
|
|
Interest
Rate
|
|
|
|
(U.S.$
in millions, Rs. in millions)
|
|
|
|
|
|
|
|
|
Convenience
translation into
U.S.$
|
|
|
|
|
|
|
|
|
|
Packing credit borrowings (short-term)
|
|
U.S.$
|
349
|
|
|
Rs.
|
22,822
|
|
|
USD
INR
INR
RUB
|
|
LIBOR + (30) to 0 bps
T-Bill + 30
bps
6.00%
9.50%
|
|
Other short-term borrowings
|
|
|
88
|
|
|
|
5,757
|
|
|
USD
RUB
UAH
|
|
LIBOR + 75 to 85 bps
9.43%
11.70% to 14.00%
|
|
Long-term borrowings
|
|
|
372
|
|
|
|
24,324
|
|
|
USD
EUR
|
|
LIBOR + 45 to 82.7 bps
0.81%
|
(1)
“INR” means Indian rupees, “RUB”
means Russian roubles, and “UAH” means Ukrainian hryvnia.
Item 4. OTHER MATTERs
Civil
Investigative Demand from the Office of the Attorney General, State of Texas
On or about November
10, 2014, Dr. Reddy’s Laboratories, Inc., one of our subsidiaries in the U.S., received a Civil Investigative Demand (“CID”)
from the Office of the Attorney General, State of Texas (the “Texas AG”) requesting certain information, documents
and data regarding sales and price reporting in the U.S. marketplace of certain products for the period of time between January
1, 1995 and the date of the CID. We have responded to all of the Texas AG’s requests to date, and we understand that the
investigation is continuing.
Subpeona duces tecum from the Office
of the Attorney General, California
On November 3, 2014,
Dr. Reddy’s Laboratories, Inc. received a subpoena duces tecum to appear before the Office of the Attorney General, California
(the “California AG”) and produce records and documents relating to the pricing of certain products. A set of five
interrogatories related to pricing practices was served as well. On July 18, 2016, the California AG sent a letter to inform Dr.
Reddy’s Laboratories, Inc. that, in light of the information provided to that date, no further information would be requested
at present in response to this subpoena.
Subpoenas from the Division of the U.S.
Department of Justice (“DOJ”) and the office of the Attorney General for the State of Connecticut
On July 6, 2016 and
August 7, 2016, one of our subsidiaries received subpoenas from the DOJ and the office of the Attorney General for the State of
Connecticut, respectively, seeking information relating to the marketing, pricing and sale of certain of our generic products and
any communications with competitors about such products. We have been cooperating, and intend to fully cooperate, with these inquiries.
Agreement with Amgen
During the three months
ended September 30, 2016, we entered into an agreement with Amgen Inc. (“Amgen”) that effectively expands the strategic
collaboration we entered with Amgen in August 2015. Under the terms of the new agreement, we will commercialize the oncology
and osteoporosis medicines XGEVA® (denosumab), Vectibix® (panitumumab) and Prolia® (denosumab) in India.
State Attorneys General Civil Actions
in the United States
On December 18, 2016,
the Attorneys General for 19 states filed claims in the United States District Court for the District of Connecticut against a
number of pharmaceutical companies alleging conspiracies to fix prices and to allocate bids and customers from 2013 through at
least 2016, with respect to two generic drugs for which our Company and our U.S. subsidiaries were not named as defendants.
In April 2017, a total
of 45 states, plus the District of Columbia and the Commonwealth of Puerto Rico, joined as plaintiffs in this case (the “State
AG Action”). In August 2017, the State AG Action was transferred and consolidated with the private plaintiff class actions
pending in the multi-district litigation (MDL-2724) in the United States District Court for the Eastern District of Pennsylvania.
On October 31, 2017, the Attorneys General for the 45 States, plus the District of Columbia and the Commonwealth of Puerto
Rico, filed an Amended Complaint in the State AG Action in MDL-2724 which has added our U.S. subsidiary as a defendant. The State
AG Action alleges that our subsidiary and other named defendants engaged in a conspiracy to fix prices and to allocate bids and
customers in the sale of generic zoledronic acid and meprobamate in the United States, and alleges an over-arching conspiracy with
the defendants on the other 13 drugs named in the State AG Amended Complaint. The State AG Amended Complaint alleges violations
of Section 1 of the Sherman Act, 15 U.S.C. §1, and the consumer and antitrust laws of 45 states, the District of Columbia
and the Commonwealth of Puerto Rico, seeking injunctive relief, recovery of treble damages, attorney's fees and other costs. We
deny any wrongdoing and intend to vigorously defend against these claims.
Item
5. Exhibits