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.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
(in millions, except share and per share
data and where otherwise stated)
Dr. Reddy’s
Laboratories Limited (the “parent company”), together with its subsidiaries and joint ventures (collectively, the “Company”),
is a leading India-based pharmaceutical company headquartered and having its registered office in Hyderabad, Telangana, India.
Through its three businesses - Pharmaceutical Services and Active Ingredients, Global Generics and Proprietary Products –
the Company offers a portfolio of products and services, including Active Pharmaceutical Ingredients (“APIs”), Custom
Pharmaceutical Services (“CPS”), generics, biosimilars and differentiated formulations.
The Company’s
principal research and development facilities are located in the states of Telangana and Andhra Pradesh in India, Cambridge in
the United Kingdom and Leiden in the Netherlands; its principal manufacturing facilities are located in the states of Telangana,
Andhra Pradesh and Himachal Pradesh in India, Cuernavaca-Cuautla in Mexico, Mirfield in the United Kingdom, and Louisiana in the
United States; and its principal markets are in India, Russia, the United States, the United Kingdom, and Germany. The Company’s
shares trade on the Bombay Stock Exchange and the National Stock Exchange in India and on the New York Stock Exchange in the United
States.
|
2.
|
Basis of preparation of financial statements
|
|
a)
|
Statement of compliance
|
These unaudited condensed
consolidated interim financial statements (hereinafter referred to as “interim financial statements”) are prepared
in accordance with IAS 34, “Interim Financial Reporting” as issued by the International Accounting Standards Board
(“IASB”). They do not include all of the information required for a complete set of annual financial statements and
should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s
Annual Report on Form 20-F for the fiscal year ended March 31, 2020. These interim financial statements were authorized for issuance
by the Company’s Board of Directors on October 28, 2020.
|
b)
|
Significant accounting policies
|
The accounting policies
applied by the Company in these interim financial statements are the same as those applied by the Company in its audited consolidated
financial statements as at and for the year ended March 31, 2020 contained in the Company’s Annual Report on Form 20-F.
Several amendments
and interpretations apply for the first time in the fiscal year ending March 31, 2021, but do not have an impact on the interim
financial statements of the Company.
These interim financial
statements have been prepared on the historical cost convention and on an accrual basis, except for the following material items
in the statements of financial position:
|
·
|
derivative financial instruments are measured
at fair value;
|
|
·
|
financial assets are measured either at
fair value or at amortized cost, depending on the classification;
|
|
·
|
employee defined benefit assets/(liabilities)
are recognized as the net total of the fair value of plan assets, adjusted for actuarial gains/(losses) and the present value of
the defined benefit obligation;
|
|
·
|
long-term borrowings are measured at amortized
cost using the effective interest rate method;
|
|
·
|
share-based payments are measured at fair
value;
|
|
·
|
investments
in joint ventures are accounted for using the equity method; and
|
|
·
|
right-of-use the assets are recognized
at the present value of lease payments that are not paid at that date. This amount is adjusted for any lease payments made at or
before the commencement date, lease incentives received and initial direct costs incurred, if any.
|
|
d)
|
Convenience translation
|
These interim financial
statements have been prepared in Indian rupees. Solely for the convenience of the reader, these interim financial statements as
of and for the three months and six months ended September 30, 2020 have been translated into U.S. dollars at the certified foreign
exchange rate of U.S.$1.00 = Rs.73.54, as published by the Federal Reserve Board of Governors on September 30, 2020.
No representation is made that the Indian rupee amounts have been, could have been or could be converted into U.S. dollars at such
a rate or any other rate. Such convenience translation is not subject to review by the Company’s independent registered public
accounting firm.
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, the significant judgments made by management in applying
the Company’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the
audited consolidated financial statements as at and for the year ended March 31, 2020.
|
g)
|
New accounting standards effective as on April 1, 2020
|
Amendments to IFRS 3: Definition of
a Business
In May 2020, the IASB
issued an amendment to IFRS 3 “Business Combinations – Reference to the Conceptual Framework.” The amendment
is effective as of January 1, 2020, although companies may choose to apply it earlier under certain circumstances. The amendment
to IFRS 3 clarifies that to be considered a business, an integrated set of activities and assets must include, at a minimum, an
input and a substantive process that together significantly contribute to the ability to create output. Furthermore, it clarified
that a business can exist without including all of the inputs and processes needed to create outputs. These amendments had no impact
on the interim financial statements of the Company, but may impact future periods should the Company enter into any business combinations.
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)
The Chief Operating
Decision Maker (“CODM”) evaluates the Company’s performance and allocates resources based on an analysis of various
performance indicators by operating segments. The CODM reviews revenue and gross profit as the performance indicator for all of
the operating segments, and does not review the total assets and liabilities of an operating segment. The Co-Chairman and Managing
Director is the CODM of the Company.
The Company’s
reportable operating segments are as follows:
|
•
|
Pharmaceutical Services and Active Ingredients (“PSAI”);
|
|
•
|
Proprietary Products; 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 primarily consists of the Company’s business of manufacturing and marketing
active pharmaceutical ingredients and intermediates, also known as “API”, which are the principal ingredients for finished
pharmaceutical products. Active pharmaceutical ingredients and intermediates become finished pharmaceutical products when the dosages
are fixed in a form ready for human consumption such as a tablet, capsule or liquid using additional inactive ingredients. This
segment also includes the Company’s contract research services business and the manufacture and sale of active pharmaceutical
ingredients and steroids in accordance with the specific customer requirements.
Proprietary
Products. This segment consists of the Company’s business that focuses on the research and development of differentiated
formulations. The segment is expected to earn revenues arising out of monetization of such assets and subsequent royalties, if
any.
Others. This
segment consists of the operations of the Company’s wholly-owned subsidiary, Aurigene Discovery Technologies Limited (“ADTL”),
a discovery stage biotechnology company developing novel and best-in-class therapies in the fields of oncology and inflammation.
ADTL works with established pharmaceutical and biotechnology companies through customized models of drug-discovery collaborations.
The measurement of
each segment’s revenues, expenses and assets is consistent with the accounting policies that are used in preparation of the
Company’s consolidated financial statements.
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, 2020
|
|
|
For the six months ended September 30, 2019
|
|
Segments
|
|
Global
Generics
|
|
|
PSAI
|
|
|
Proprietary
Products
|
|
|
Others
|
|
|
Total
|
|
|
Global
Generics
|
|
|
PSAI
|
|
|
Proprietary
Products
|
|
|
Others
|
|
|
Total
|
|
Revenues(1)
|
|
Rs.
|
74,916
|
|
|
Rs.
|
17,058
|
|
|
Rs.
|
156
|
|
|
Rs.
|
1,012
|
|
|
Rs.
|
93,142
|
|
|
Rs.
|
65,798
|
|
|
Rs.
|
11,646
|
|
|
Rs.
|
7,706
|
|
|
Rs.
|
1,294
|
|
|
Rs.
|
86,444
|
|
Gross profit
|
|
Rs.
|
45,211
|
|
|
Rs.
|
5,140
|
|
|
Rs.
|
144
|
|
|
Rs.
|
669
|
|
|
Rs.
|
51,164
|
|
|
Rs.
|
37,207
|
|
|
Rs.
|
2,075
|
|
|
Rs.
|
7,505
|
|
|
Rs.
|
692
|
|
|
Rs.
|
47,479
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,282
|
|
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,271
|
|
Impairment of non-current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,560
|
|
Other income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(267
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,894
|
)
|
Results from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
16,418
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
15,260
|
|
Finance income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
624
|
|
Share of profit of equity accounted investees,
net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
280
|
|
Profit before tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
17,410
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
16,164
|
|
Tax expense/(benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,389
|
)
|
Profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
13,416
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
17,553
|
|
|
|
|
|
|
|
|
Information about segments:
|
|
For the three months ended September 30, 2020
|
|
|
For the three months ended September 30, 2019
|
|
Segments
|
|
Global
Generics
|
|
|
PSAI
|
|
|
Proprietary
Products
|
|
|
Others
|
|
|
Total
|
|
|
Global
Generics
|
|
|
PSAI
|
|
|
Proprietary
Products
|
|
|
Others
|
|
|
Total
|
|
Revenues(1)
|
|
Rs.
|
39,841
|
|
|
Rs.
|
8,505
|
|
|
Rs.
|
100
|
|
|
Rs.
|
521
|
|
|
Rs.
|
48,967
|
|
|
Rs.
|
32,816
|
|
|
Rs.
|
7,107
|
|
|
Rs.
|
7,425
|
|
|
Rs.
|
661
|
|
|
Rs.
|
48,009
|
|
Gross profit
|
|
Rs.
|
23,685
|
|
|
Rs.
|
2,284
|
|
|
Rs.
|
88
|
|
|
Rs.
|
352
|
|
|
Rs.
|
26,409
|
|
|
Rs.
|
18,200
|
|
|
Rs.
|
1,750
|
|
|
Rs.
|
7,298
|
|
|
Rs.
|
372
|
|
|
Rs.
|
27,620
|
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,217
|
|
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,359
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,662
|
|
Impairment of non-current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,560
|
|
Other income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(149
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(135
|
)
|
Results from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
8,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
7,316
|
|
Finance income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
237
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
231
|
|
Share of profit of equity accounted investees,
net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
117
|
|
Profit before tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
8,621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
7,664
|
|
Tax expense/(benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,261
|
)
|
Profit for the period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
7,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rs.
|
10,925
|
|
|
(1)
|
Revenues for the six months ended September 30, 2020 and 2019 do not include inter-segment revenues
from the PSAI segment to the Global Generics segment, which amount to Rs.3,288 and Rs.2,789, respectively. Revenues for the three
months ended September 30, 2020 and 2019 do not include inter-segment revenues from the PSAI segment to the Global Generics segment,
which amount to Rs.1,751 and Rs.1,395, 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)
|
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
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
India
|
|
Rs.
|
16,932
|
|
|
Rs.
|
15,923
|
|
|
Rs.
|
9,887
|
|
|
Rs.
|
8,295
|
|
United States
|
|
|
38,441
|
|
|
|
39,621
|
|
|
|
20,147
|
|
|
|
22,532
|
|
Russia
|
|
|
7,250
|
|
|
|
8,069
|
|
|
|
3,978
|
|
|
|
4,105
|
|
Others
|
|
|
30,519
|
|
|
|
22,831
|
|
|
|
14,955
|
|
|
|
13,077
|
|
|
|
Rs.
|
93,142
|
|
|
Rs.
|
86,444
|
|
|
Rs.
|
48,967
|
|
|
Rs.
|
48,009
|
|
|
4.
|
Cash and cash equivalents
|
Cash and cash equivalents consist of the following:
|
|
As of
|
|
|
|
September 30, 2020
|
|
|
March 31, 2020
|
|
Cash on hand
|
|
Rs.
|
2
|
|
|
Rs.
|
2
|
|
Balances with banks
|
|
|
1,785
|
|
|
|
1,807
|
|
Term deposits with banks (original maturities less than 3 months)
|
|
|
2,102
|
|
|
|
244
|
|
Cash and cash equivalents in the statements of financial position
|
|
Rs.
|
3,889
|
|
|
Rs.
|
2,053
|
|
Bank overdrafts used for cash management purposes
|
|
|
101
|
|
|
|
91
|
|
Cash and cash equivalents in the statement of cash flow
|
|
Rs.
|
3,788
|
|
|
Rs.
|
1,962
|
|
Restricted cash balances included above
|
|
|
|
|
|
|
|
|
Balance in unclaimed dividends and debenture interest account
|
|
Rs.
|
99
|
|
|
Rs.
|
111
|
|
Balances in Escrow account pursuant to the Business Transfer Agreement with Wockhardt Limited (Refer to Note 24 for details)
|
|
|
40
|
|
|
|
-
|
|
Other restricted cash balances
|
|
|
82
|
|
|
|
15
|
|
Other investments
consist of investments in units of mutual funds, equity securities, bonds, market linked debentures, commercial paper and term
deposits with banks (i.e., certificates of deposit having an original maturity period exceeding 3 months). The details of such
investments as of September 30, 2020 and March 31, 2020 were as follows:
|
|
As of September 30, 2020
|
|
|
As of March 31, 2020
|
|
|
|
Cost
|
|
|
Unrealized
gain/(loss)
|
|
|
Fair value/
amortized
cost(2)
|
|
|
Cost
|
|
|
Unrealized
gain/(loss)
|
|
|
Fair value/
amortized
cost(2)
|
|
Current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In units of mutual funds
|
|
Rs.
|
15,854
|
|
|
Rs.
|
161
|
|
|
Rs.
|
16,015
|
|
|
Rs.
|
13,686
|
|
|
Rs.
|
146
|
|
|
Rs.
|
13,832
|
|
In bonds
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,851
|
|
|
|
-
|
|
|
|
1,851
|
|
In commercial paper
|
|
|
977
|
|
|
|
-
|
|
|
|
977
|
|
|
|
967
|
|
|
|
-
|
|
|
|
967
|
|
In market linked debentures
|
|
|
1,000
|
|
|
|
(44
|
)
|
|
|
956
|
|
|
|
2,000
|
|
|
|
(7
|
)
|
|
|
1,993
|
|
Term deposits with banks
|
|
|
3,206
|
|
|
|
-
|
|
|
|
3,206
|
|
|
|
5,044
|
|
|
|
-
|
|
|
|
5,044
|
|
|
|
Rs.
|
21,037
|
|
|
Rs.
|
117
|
|
|
Rs.
|
21,154
|
|
|
Rs.
|
23,548
|
|
|
Rs.
|
139
|
|
|
Rs.
|
23,687
|
|
Non-current portion
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In equity securities(1)
|
|
Rs.
|
2,701
|
|
|
Rs.
|
(2,217
|
)
|
|
Rs.
|
484
|
|
|
Rs.
|
2,701
|
|
|
Rs.
|
(2,397
|
)
|
|
Rs.
|
304
|
|
In bonds
|
|
Rs.
|
522
|
|
|
|
-
|
|
|
Rs.
|
522
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Others
|
|
|
25
|
|
|
|
-
|
|
|
|
25
|
|
|
|
24
|
|
|
|
-
|
|
|
|
24
|
|
|
|
Rs.
|
3,248
|
|
|
Rs.
|
(2,217
|
)
|
|
Rs.
|
1,031
|
|
|
Rs.
|
2,725
|
|
|
Rs.
|
(2,397
|
)
|
|
Rs.
|
328
|
|
DR. REDDY’S LABORATORIES LIMITED
AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
(in millions, except share and per share
data and where otherwise stated)
|
5.
|
Other investments (continued)
|
|
(1)
|
Primarily represents the shares of Curis, Inc. issued to the Company under a 2015 Collaboration
Agreement with Curis, Inc., as amended. For further details, refer to Note 33 of the consolidated financial statements in the Company’s
Annual Report on Form 20-F for the fiscal year ended March 31, 2020.
|
|
(2)
|
Interest accrued but not due on bonds and debentures, commercial paper and term deposits with banks
is included in other current assets.
|
For the purpose of measurement, the aforesaid
investments are classified as follows:
Investments in units of mutual funds
|
Fair value through profit and loss
|
Investments in bonds, commercial paper, term deposits and others
|
Amortized cost
|
Investments in market linked debentures
|
Fair value through other comprehensive income
|
Investments in equity securities
|
Fair value through other comprehensive income (on account of irrevocable option elected at time of transition)
|
|
6.
|
Trade and other receivables
|
|
|
As of
|
|
|
|
September 30, 2020
|
|
|
March 31, 2020
|
|
Current
|
|
|
|
|
|
|
Trade and other receivables, gross
|
|
Rs.
|
51,308
|
|
|
Rs.
|
51,480
|
|
Less: Allowance for credit losses
|
|
|
(1,231
|
)
|
|
|
(1,202
|
)
|
Trade and other receivables, net
|
|
Rs.
|
50,077
|
|
|
Rs.
|
50,278
|
|
Non-current
|
|
|
|
|
|
|
|
|
Trade and other receivables, gross(1)
|
|
Rs.
|
258
|
|
|
Rs.
|
1,737
|
|
Less: Allowance for credit losses
|
|
|
-
|
|
|
|
-
|
|
Trade and other receivables, net
|
|
Rs.
|
258
|
|
|
Rs.
|
1,737
|
|
|
(1)
|
Represents amounts receivable pursuant to an out-licensing arrangement with a customer. As these
amounts are not expected to be realized within twelve months from the end of the reporting date, they are disclosed as non-current.
|
Pursuant to an arrangement
with a bank, the Company sells to the bank certain of its trade receivables forming part of its Global Generics segment, on a non-recourse
basis. The receivables sold were mutually agreed upon with the bank after considering the creditworthiness and contractual terms
with the customer, including any gross to net adjustments (due to rebates, discounts etc.) from the contracted amounts. As a result,
the receivables sold are generally lower than the total net amount of trade receivables. The Company has transferred substantially
all the risks and rewards of ownership of such receivables sold to the bank, and accordingly, the same are derecognized in the
statements of financial position. As on September 30, 2020 and March 31, 2020, the amount of trade receivables de-recognized pursuant
to the aforesaid arrangement was Rs.10,277 (U.S.$139) and Rs.9,049 (U.S.$120), respectively.
Inventories consist of the following:
|
|
As of
|
|
|
|
September 30, 2020
|
|
|
March 31, 2020
|
|
Raw materials
|
|
Rs.
|
11,882
|
|
|
Rs.
|
10,594
|
|
Work-in-progress
|
|
|
8,169
|
|
|
|
6,806
|
|
Finished goods (includes stock-in-trade)
|
|
|
17,854
|
|
|
|
15,126
|
|
Packing materials, stores and spares
|
|
|
3,229
|
|
|
|
2,540
|
|
|
|
Rs.
|
41,134
|
|
|
Rs.
|
35,066
|
|
DR. REDDY’S LABORATORIES LIMITED
AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
(in millions, except share and per share
data and where otherwise stated)
|
7.
|
Inventories (continued)
|
Details of inventories recognized in interim
financial statements are as follows:
|
|
For the six months
ended September 30,
|
|
|
For the three months
ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Raw materials, consumables and changes in finished goods and work in progress
|
|
Rs.
|
27,469
|
|
|
Rs.
|
24,165
|
|
|
Rs.
|
15,426
|
|
|
Rs.
|
12,882
|
|
Inventory write-downs(1)
|
|
|
1,528
|
|
|
|
1,915
|
|
|
|
375
|
|
|
|
1,129
|
|
|
(1)
|
Following the Company’s decision to voluntarily recall
all of its ranitidine medications sold in the United States due to confirmed contamination with N-Nitrosodimethylamine (NDMA)
above levels established by the U.S.FDA, the Company recognized Rs.231 as inventory write downs towards semi-finished and finished
inventory of ranitidine during the three months ended September 30, 2019. Further, an amount of Rs.170 was recognized as a possible
refund liability (as a reduction from revenue) arising out of the Company’s decision to recall such product.
|
|
8.
|
Property, plant and equipment
|
Acquisitions and disposals
|
|
For the six months ended
September 30,
|
|
|
For the year ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
Cost of assets acquired during the period(1)
|
|
Rs.
|
6,724
|
|
|
Rs.
|
2,205
|
|
|
Rs.
|
5,667
|
|
Assets acquired through business combinations(2)
|
|
|
373
|
|
|
|
-
|
|
|
|
-
|
|
Recognition of right-of-use asset on initial application of IFRS 16
|
|
|
-
|
|
|
|
1,153
|
|
|
|
1,153
|
|
Net book value of assets disposed of during the period
|
|
|
72
|
|
|
|
35
|
|
|
|
81
|
|
Depreciation expense
|
|
|
4,307
|
|
|
|
4,429
|
|
|
|
8,640
|
|
|
(1)
|
Additions for the six months ended September 30, 2020 include
right-of-use asset of Rs.1,852 relating to a warehousing service in the United States.
|
|
(2)
|
Refer to Note 24 of these interim financial statements
for further details.
|
Capital commitments
As of September 30,
2020 and March 31, 2020, the Company was committed to spend Rs.6,884 and Rs.4,888, respectively, under agreements to purchase property,
plant and equipment. This amount is net of capital advances paid in respect of such purchase commitments.
Goodwill arising on
business combinations is not amortized but is tested for impairment at least annually, or more frequently if there is any indication
that the cash generating unit to which goodwill is allocated is impaired.
The following table presents goodwill as
of September 30, 2020 and March 31, 2020:
|
|
As of
|
|
|
|
September 30, 2020
|
|
|
March 31, 2020
|
|
Opening balance, gross
|
|
Rs.
|
20,278
|
|
|
Rs.
|
20,176
|
|
Goodwill arising on business combinations(1)
|
|
|
530
|
|
|
|
-
|
|
Effect of translation adjustments
|
|
|
57
|
|
|
|
102
|
|
Impairment loss(2)
|
|
|
(16,284
|
)
|
|
|
(16,284
|
)
|
Closing balance
|
|
Rs.
|
4,581
|
|
|
Rs.
|
3,994
|
|
|
(1)
|
Refer to Note 24 of these interim financial statements
for further details.
|
|
(2)
|
The impairment loss of Rs.16,284 includes Rs.16,003 pertaining
to the Company’s German subsidiary, betapharm Arzneimittel GmbH, which is part of the Company’s Global Generics segment.
This impairment loss was recorded for the years ended March 31, 2009 and 2010.
|
DR. REDDY’S LABORATORIES LIMITED
AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
(in millions, except share and per share
data and where otherwise stated)
|
10.
|
Other intangible assets
|
|
|
For the six months ended
September 30,
|
|
|
For the year ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
Cost of assets acquired during the period(1)
|
|
Rs.
|
1,696
|
|
|
Rs.
|
837
|
|
|
Rs.
|
1,806
|
|
Assets acquired through business combinations(2)
|
|
|
14,888
|
|
|
|
-
|
|
|
|
-
|
|
Net book value of assets disposed of during the period
|
|
|
-
|
|
|
|
55
|
|
|
|
65
|
|
Amortization expense
|
|
|
2,104
|
|
|
|
1,993
|
|
|
|
3,832
|
|
Impairment loss recognized during the period(3)(4)
|
|
|
781
|
|
|
|
3,551
|
|
|
|
16,757
|
|
|
(1)
|
Assets acquired during the six months ended September 30,
2020 include Rs.728 representing the estimated payment for the purchase of intellectual property rights relating to product forming
part of Company’s Proprietary Products segment.
|
Assets acquired during the six months ended
September 30, 2019 and the year ended March 31, 2020 includes, a portfolio of approved, non-marketed Abbreviated New Drug Applications
(“ANDAs”) in the United States from Teva for a total consideration of Rs.277 (U.S.$4). The Company recognized these
ANDAs acquired as product related intangibles.
|
(2)
|
Refer Note 24 of these interim financial statements for
further details.
|
|
(3)
|
Impairment charge of Rs.781 for the six months ended September
30, 2020 includes:
|
|
·
|
Rs.728
pertaining to product related intangible forming part of the Company’s Proprietary Product segment due to decrease in the
market potential for the product;
|
|
·
|
Rs.53
pertaining to certain product related intangibles forming part of the Company’s Global Generics segment due to Company’s
decision to discontinue their further development and commercialization.
|
|
(4)
|
Total impairment loss for the year ended March 31, 2020
was Rs.16,757 (six months ended September 30, 2019 : Rs.3,551), of which Rs.11,137 pertained to impairment of gNuvaring, Rs.4,385 (six
months ended September 30, 2019 : Rs.3,551) pertained to impairment of ramelteon, tobramycin and imiquimod, and the balance was
towards other product related intangibles forming part of the Company’s Global Generics and Proprietary Products segments.
|
Details of significant separately acquired
intangible assets as of September 30, 2020 are as follows:
Particulars of the asset
|
|
Acquired from
|
|
Carrying cost
|
|
Select portfolio of branded generics business
|
|
Wockhardt Limited
|
|
Rs.
|
14,640
|
|
ANDAs
|
|
Teva and an affiliate of Allergan
|
|
|
9,195
|
|
Select portfolio of dermatology, respiratory and pediatric assets
|
|
UCB India Private Limited and affiliates
|
|
|
4,820
|
|
Intellectual property rights relating to PPC-06 (tepilamide fumarate)
|
|
Xenoport, Inc
|
|
|
3,990
|
|
Commercialization rights for an anti-cancer biologic agent
|
|
Eisai Company Limited
|
|
|
1,822
|
|
Habitrol® brand
|
|
Novartis Consumer Health Inc.
|
|
|
1,538
|
|
Over the counter product brands
|
|
Ducere Pharma LLC
|
|
|
695
|
|
Beta brand
|
|
3i Group plc
|
|
|
423
|
|
Various ANDAs
|
|
Gland Pharma Limited
|
|
|
357
|
|
Short-term borrowings
Short-term borrowings
primarily consist of “pre-shipment credit” drawn by the parent company and other unsecured loans drawn by certain of
its subsidiaries in Russia, Mexico, South Africa, Switzerland , the United States and Brazil which are repayable within 6 to 12
months from the date of drawdown.
Short-term borrowings
consist of the following:
|
|
As of
|
|
|
|
September 30, 2020
|
|
|
March 31, 2020
|
|
Pre-shipment credit
|
|
Rs.
|
15,751
|
|
|
Rs.
|
10,432
|
|
Other working capital borrowings
|
|
|
4,101
|
|
|
|
6,009
|
|
|
|
Rs.
|
19,852
|
|
|
Rs.
|
16,441
|
|
DR. REDDY’S LABORATORIES LIMITED
AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
(in millions, except share and per share
data and where otherwise stated)
|
11.
|
Loans and borrowings (continued)
|
The interest rate
profile of short-term borrowings from banks is given below:
|
As of
|
|
|
September 30, 2020
|
|
March 31, 2020
|
|
|
Currency(1)
|
|
Interest Rate(2)
|
|
Currency(1)
|
|
Interest Rate(2)
|
|
Pre-shipment credit
|
U.S.$
|
|
1 Month/6 Month LIBOR + 12.5 to 15 bps
|
|
U.S.$
|
|
1 Month LIBOR + 12.5 to 16 bps
|
|
|
INR
|
|
1 Month T-bill + 35 bps
|
|
INR
|
|
1 Month T-bill + 60 bps
|
|
|
INR
|
|
1 Month T-bill + 60 bps with a collar of 4.20%
|
|
-
|
|
-
|
|
|
INR
|
|
5.75%
|
|
-
|
|
-
|
|
Other working capital borrowings
|
ZAR
|
|
1 Month JIBAR+120 bps
|
|
ZAR
|
|
1 Month JIBAR+120 bps
|
|
|
RUB
|
|
7.15%
|
|
RUB
|
|
7.05%
|
|
|
BRL
|
|
7.25%
|
|
BRL
|
|
7.25%
|
|
|
MXN
|
|
TIIE + 1.20%
|
|
MXN
|
|
TIIE + 1.25%
|
|
|
INR
|
|
6.20%
|
|
INR
|
|
7.75%
|
|
|
U.S.$
|
|
1 Month LIBOR + 75 bps
|
|
U.S.$
|
|
1 Month/3 Months LIBOR + 55 to 78 bps
|
|
|
(1)
|
“INR” means Indian rupees, “U.S.$”
means United States Dollars, “RUB” means Russian roubles, “MXN” means Mexican pesos, “BRL”
means Brazilian reals and “ZAR” means South African rand.
|
|
(2)
|
“LIBOR” means the London Inter-bank Offered
Rate, “TIIE” means the Equilibrium Inter-banking Interest Rate (Tasa de Interés Interbancaria de Equilibrio),
“JIBAR” means the Johannesburg Interbank Average Rate and “T-bill” means the India Treasury Bill interest
rate.
|
Long-term borrowings
Long-term borrowings consist of the following:
|
|
As of
|
|
|
|
September 30, 2020
|
|
|
March 31, 2020
|
|
|
|
Non – Current
|
|
|
Current
|
|
|
Non – Current
|
|
|
Current
|
|
Foreign currency borrowing by the parent company
|
|
Rs.
|
-
|
|
|
Rs.
|
-
|
|
|
Rs.
|
-
|
|
|
Rs.
|
3,783
|
|
Non-convertible debentures by the APSL subsidiary(1)
|
|
|
3,800
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Obligations under leases(2)
|
|
|
2,861
|
|
|
|
815
|
|
|
|
1,304
|
|
|
|
483
|
|
|
|
Rs.
|
6,661
|
|
|
Rs.
|
815
|
|
|
Rs.
|
1,304
|
|
|
Rs.
|
4,266
|
|
|
(1)
|
“APSL subsidiary” refers to Aurigene Pharmaceutical
Services Limited.
|
|
(2)
|
Additions for the six months ended September 30, 2020 include
right-of-use liability of Rs.1,878 relating to warehousing service in the United States.
|
During the six months
ended September 30, 2020, the APSL subsidiary issued non-convertible debentures for Rs.3,800. The aforesaid non-convertible debentures
are repayable at par after 3 years following the date of issue.
DR. REDDY’S LABORATORIES LIMITED
AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
(in millions, except share and per share
data and where otherwise stated)
|
11.
|
Loans and borrowings (continued)
|
The interest rate
profiles of long-term borrowings (other than obligations under leases) as at September 30, 2020 and March 31, 2020 were
as follows:
|
|
As of
|
|
|
|
September 30, 2020
|
|
|
March 31, 2020
|
|
|
|
Currency(1)
|
|
|
Interest Rate(2)
|
|
|
Currency(1)
|
|
|
Interest Rate(2)
|
|
Foreign currency borrowings
|
|
|
-
|
|
|
|
-
|
|
|
U.S.$
|
|
|
|
|
1 Month LIBOR + 82.7 bps
|
|
Non-convertible debentures
|
|
|
INR
|
|
|
|
6.77
|
%
|
|
|
-
|
|
|
|
-
|
|
|
(1)
|
“U.S.$” means United States dollars and “INR”
means Indian rupees.
|
|
(2)
|
“LIBOR” means the London Inter-bank Offered
Rate.
|
Uncommitted lines of credit from banks
The Company had uncommitted
lines of credit of Rs.41,581 and Rs.39,374 as of September 30, 2020 and March 31, 2020, respectively, from its banks for working
capital requirements. The Company has the right to draw upon these lines of credit based on its working capital requirements.
The following table
presents the changes in number of equity shares and amount of equity share capital for the six months ended September 30, 2020
and September 30, 2019:
|
|
As of
|
|
|
|
September 30, 2020
|
|
|
September 30, 2019
|
|
|
|
Number
|
|
|
Amount
|
|
|
Number
|
|
|
Amount
|
|
Opening number of equity shares/share capital
|
|
|
166,172,082
|
|
|
Rs.
|
831
|
|
|
|
166,065,948
|
|
|
Rs.
|
830
|
|
Add: Equity shares issued pursuant to employee stock option plans(1)
|
|
|
97,197
|
|
|
|
-
|
*
|
|
|
79,800
|
|
|
|
1
|
|
Closing number of equity shares/share capital
|
|
|
166,269,279
|
|
|
Rs.
|
831
|
|
|
|
166,145,748
|
|
|
Rs.
|
831
|
|
Treasury shares(2)
|
|
|
383,054
|
|
|
Rs.
|
1,048
|
|
|
|
397,100
|
|
|
Rs.
|
1,009
|
|
* Rounded off to nearest million.
|
(1)
|
During the six months ended September 30, 2020 and 2019,
equity shares were issued as a result of the exercise of vested options granted to employees pursuant to the Dr. Reddy’s
Employees Stock Option Scheme, 2002 and the Dr. Reddy’s Employees Stock Option Scheme, 2007. The options exercised had an
exercise price of Rs.5, Rs.2,607 or Rs.2,814 per share. Upon the exercise of such options, the amount of compensation cost (computed
using the grant date fair value) previously recognized in the "share based payment reserve” was transferred to “share
premium” in the unaudited condensed consolidated statements of changes in equity.
|
|
(2)
|
Pursuant to the special resolution approved by the shareholders
in the Annual General Meeting held on July 27, 2018, the Dr. Reddy’s Employees ESOS Trust (the “ESOS Trust”)
was formed to support the Dr. Reddy’s Employees Stock Option Scheme, 2018 by acquiring, from the Company or through secondary
market acquisitions, equity shares which are used for issuance to eligible employees (as defined therein) upon exercise of stock
options thereunder. During the six months ended September 30, 2020, an aggregate of 56,175 equity shares were issued as a result
of the exercise of vested options granted to employees pursuant to the Dr. Reddy’s Employees Stock Option Scheme, 2018.
The options exercised had an exercise price of Rs.2,607 or Rs.2,814 per share. Upon the exercise of such options, the amount of compensation
cost (computed using the grant date fair value) previously recognized in the “share based payment reserve” was transferred
to “share premium” in the unaudited consolidated statements of changes in equity. In addition, any difference between
the carrying amount of treasury shares and the consideration received was recognized in the “share premium”. As of
September 30, 2020 and March 31, 2020, the ESOS Trust had outstanding 383,054 and 395,950 shares, respectively, which it purchased
from the secondary market for an aggregate consideration of Rs.1,048 and Rs.1,006, 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)
|
13.
|
Revenue from contracts with customers
|
|
|
For the six months
ended September 30,
|
|
|
For the three months
ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Sales
|
|
Rs.
|
91,010
|
|
|
Rs.
|
77,606
|
|
|
Rs.
|
47,766
|
|
|
Rs.
|
39,982
|
|
Service income
|
|
|
1,565
|
|
|
|
1,063
|
|
|
|
914
|
|
|
|
486
|
|
License fees
|
|
|
567
|
|
|
|
7,775
|
|
|
|
287
|
|
|
|
7,541
|
|
|
|
Rs.
|
93,142
|
|
|
Rs.
|
86,444
|
|
|
Rs.
|
48,967
|
|
|
Rs.
|
48,009
|
|
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
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
India
|
|
Rs.
|
16,932
|
|
|
Rs.
|
15,923
|
|
|
Rs.
|
9,887
|
|
|
Rs.
|
8,295
|
|
United States
|
|
|
38,441
|
|
|
|
39,621
|
|
|
|
20,147
|
|
|
|
22,532
|
|
Russia
|
|
|
7,250
|
|
|
|
8,069
|
|
|
|
3,978
|
|
|
|
4,105
|
|
Others
|
|
|
30,519
|
|
|
|
22,831
|
|
|
|
14,955
|
|
|
|
13,077
|
|
|
|
Rs.
|
93,142
|
|
|
Rs.
|
86,444
|
|
|
Rs.
|
48,967
|
|
|
Rs.
|
48,009
|
|
Refund liabilities
on account of sales returns amounting to Rs.3,306 and Rs.3,252 as of September 30, 2020 and March 31, 2020, respectively, have
been included in provisions forming part of current liabilities.
Other income, net consists
of the following:
|
|
For the six months
ended September 30,
|
|
|
For the three months
ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Loss/(gain) on sale/disposal of non-current assets, net
|
|
Rs.
|
15
|
|
|
Rs.
|
(19
|
)
|
|
Rs.
|
14
|
|
|
Rs.
|
(14
|
)
|
Sale of spent chemicals
|
|
|
(113
|
)
|
|
|
(149
|
)
|
|
|
(60
|
)
|
|
|
(76
|
)
|
Scrap sales
|
|
|
(55
|
)
|
|
|
(81
|
)
|
|
|
(34
|
)
|
|
|
(34
|
)
|
Miscellaneous income, net(1)
|
|
|
(114
|
)
|
|
|
(3,645
|
)
|
|
|
(69
|
)
|
|
|
(11
|
)
|
|
|
Rs.
|
(267
|
)
|
|
Rs.
|
(3,894
|
)
|
|
Rs.
|
(149
|
)
|
|
Rs.
|
(135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Miscellaneous income, net for the six months ended September
30, 2019 includes Rs.3,457 (U.S.$50) received from Celgene pursuant to a settlement agreement entered into in April 2019. The agreement
effectively settles any claim the Company or its affiliates may have had for damages under section 8 of the Canadian Patented
Medicines (Notice of Compliance) Regulations in regard to the Company’s ANDS for a generic version of REVLIMID® brand
capsules (Lenalidomide) pending before Health Canada.
|
Finance income, net
consists of the following:
|
|
For the six months
ended September 30,
|
|
|
For the three months
ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Interest income
|
|
Rs.
|
403
|
|
|
Rs.
|
500
|
|
|
Rs.
|
122
|
|
|
Rs.
|
275
|
|
Fair value changes and profit on sale of units of mutual funds, net
|
|
|
389
|
|
|
|
562
|
|
|
|
131
|
|
|
|
253
|
|
Foreign exchange gain, net
|
|
|
535
|
|
|
|
158
|
|
|
|
236
|
|
|
|
4
|
|
Miscellaneous income, net
|
|
|
-
|
|
|
|
5
|
|
|
|
-
|
|
|
|
3
|
|
Finance income (A)
|
|
Rs.
|
1,327
|
|
|
Rs.
|
1,225
|
|
|
Rs.
|
489
|
|
|
Rs.
|
535
|
|
Interest expense
|
|
|
(485
|
)
|
|
|
(601
|
)
|
|
|
(252
|
)
|
|
|
(304
|
)
|
Finance expense (B)
|
|
Rs.
|
(485
|
)
|
|
Rs.
|
(601
|
)
|
|
Rs.
|
(252
|
)
|
|
Rs.
|
(304
|
)
|
Finance income, net [(A)+(B)]
|
|
Rs.
|
842
|
|
|
Rs.
|
624
|
|
|
Rs.
|
237
|
|
|
Rs.
|
231
|
|
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)
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, 2020 and 2019 was 22.9% and (8.6)%,
respectively. Income tax expense was Rs.3,994 for the six months ended September 30, 2020, as compared to an income tax benefit
of Rs.1,389 for the six months ended September 30, 2019.
The
Company’s consolidated weighted average tax rate for the three months ended September 30, 2020 and 2019 was 11.6% and (42.5)%,
respectively. Income tax expense was Rs.998 for the three months ended September 30, 2020, as compared to an income tax benefit
of Rs.3,261 for the three months ended September 30, 2019.
The
effective rates of tax for the three and six months ended September 30, 2019 were lower than the enacted tax rate primarily on
account of recognition of a deferred tax asset related to the Minimum Alternate Tax (“MAT”) credits in Dr. Reddy’s
Laboratories Limited, the parent company in India. The MAT credit was recognized as a one-time benefit to the income statement
for the three and six months ended September 30, 2019.
The
effective rates of tax for the three and six months ended September 30, 2020 were lower than the enacted tax rate primarily on
account of recognition of deferred tax asset amounting to Rs.1,012 pursuant to a planned restructuring activity between the Group
Companies.
Total
tax expense recognized directly in the equity were Rs.138 and Rs.294 for the three months and six months ended September 30, 2020,
respectively (as compared to tax benefits of Rs.65 and Rs.88 for the three months and six months ended September 30, 2019, respectively).
Such tax expenses and benefits were primarily due to tax effects of changes in fair value of financial instruments and the foreign
exchange gain/loss on cash flow hedges.
The following table
shows supplemental information related to certain “nature of expense” items for the three months and six months ended
September 30, 2020 and 2019:
|
|
For the six months
ended September 30,
|
|
|
For the three months
ended September 30,
|
|
Depreciation
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Cost of revenues
|
|
Rs.
|
3,085
|
|
|
Rs.
|
3,266
|
|
|
Rs.
|
1,551
|
|
|
Rs.
|
1,667
|
|
Selling, general and administrative expenses
|
|
|
740
|
|
|
|
692
|
|
|
|
394
|
|
|
|
404
|
|
Research and development expenses
|
|
|
482
|
|
|
|
471
|
|
|
|
242
|
|
|
|
234
|
|
|
|
Rs.
|
4,307
|
|
|
Rs.
|
4,429
|
|
|
Rs.
|
2,187
|
|
|
Rs.
|
2,305
|
|
|
|
For the six months
ended September 30,
|
|
|
For the three months
ended September 30,
|
|
Amortization
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Cost of revenues
|
|
Rs.
|
-
|
|
|
Rs.
|
142
|
|
|
Rs.
|
-
|
|
|
Rs.
|
72
|
|
Selling, general and administrative expenses
|
|
|
2,051
|
|
|
|
1,792
|
|
|
|
1,056
|
|
|
|
933
|
|
Research and development expenses
|
|
|
53
|
|
|
|
59
|
|
|
|
28
|
|
|
|
29
|
|
|
|
Rs.
|
2,104
|
|
|
Rs.
|
1,993
|
|
|
Rs.
|
1,084
|
|
|
Rs.
|
1,034
|
|
|
|
For the six months
ended September 30,
|
|
|
For the three months
ended September 30,
|
|
Employee benefits
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Cost of revenues
|
|
Rs.
|
5,948
|
|
|
Rs.
|
5,447
|
|
|
Rs.
|
3,156
|
|
|
Rs.
|
2,643
|
|
Selling, general and administrative expenses
|
|
|
9,886
|
|
|
|
9,178
|
|
|
|
5,127
|
|
|
|
4,513
|
|
Research and development expenses
|
|
|
2,378
|
|
|
|
2,245
|
|
|
|
1,205
|
|
|
|
1,099
|
|
|
|
Rs.
|
18,212
|
|
|
Rs.
|
16,870
|
|
|
Rs.
|
9,488
|
|
|
Rs.
|
8,255
|
|
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.
|
Employee benefit plans
|
Gratuity benefits provided by the parent company
In
accordance with applicable Indian laws, the Company has a defined benefit plan which provides for gratuity payments (the “Gratuity
Plan”) and covers certain categories of employees in India. The Gratuity Plan provides a lump sum gratuity payment to eligible
employees at retirement or termination of their employment. The amount of the payment is based on the respective employee’s
last drawn salary and the years of employment with the Company. Effective September 1, 1999, the Company established the Dr. Reddy’s
Laboratories Gratuity Fund (the “Gratuity Fund”) to fund the Gratuity Plan. Liabilities in respect of the Gratuity
Plan are determined by an actuarial valuation, based upon which the Company makes contributions to the Gratuity Fund. Trustees
administer the contributions made to the Gratuity Fund. Amounts contributed to the Gratuity Fund are invested in bonds issued by
the Government of India, in debt securities and in equity securities of Indian companies. The liability recorded by the Company
towards this obligation was Rs.213 and Rs.189 as at September 30, 2020 and March 31, 2020, respectively.
Compensated absences
The Company provides
for accumulation of compensated absences by certain categories of its employees. These employees can carry forward a portion of
the unutilized compensated absences and utilize them in future periods or receive cash in lieu thereof as per the Company’s
policy. The Company records a liability for compensated absences in the period in which the employee renders the services that
increases this entitlement. The total liability recorded by the Company towards this obligation was Rs.903 and Rs.1,161 as at September
30, 2020 and March 31, 2020, respectively.
|
19.
|
Employee stock incentive plans
|
Pursuant to the special
resolutions approved by the shareholders in the Annual General Meetings held on September 24, 2001, on July 27, 2005,
and on July 27, 2019 respectively, the Company instituted the Dr. Reddy’s Employees Stock Option Scheme, 2002 (the “DRL
2002 Plan”), the Dr. Reddy’s Employees ADR Stock Option Scheme, 2007 (the “DRL 2007 Plan”), and Dr. Reddy’s
Employees Stock Option Scheme, 2019 (the “DRL 2019 Plan”) each of which allows for grants of stock options to eligible
employees.
Grants under Stock
Incentive Plans
The terms and conditions
of the grants made during the six months ended September 30, 2020 under the above plans were as follows:
Particulars
|
|
Number of
instruments
|
|
|
Exercise price
|
|
|
Vesting period
|
|
Contractual
life
|
DRL 2002 Plan
|
|
|
88,848
|
|
|
Rs.
|
5.00
|
|
|
1 to 4 years
|
|
5 years
|
DRL 2007 Plan
|
|
|
52,316
|
|
|
Rs.
|
5.00
|
|
|
1 to 4 years
|
|
5 years
|
DRL 2007 Plan
|
|
|
96,080
|
|
|
Rs.
|
3,679.00
|
|
|
1 to 4 years
|
|
5 years
|
DRL 2018 Plan
|
|
|
150,740
|
|
|
Rs.
|
3,679.00
|
|
|
1 to 4 years
|
|
5 years
|
The above grants were
made on May 19, 2020.
The terms and conditions
of the grants made during the six months ended September 30, 2019 under the above plans were as follows:
Particulars
|
|
Number of
instruments
|
|
|
Exercise price
|
|
|
Vesting period
|
|
Contractual
life
|
DRL 2002 Plan
|
|
|
46,680
|
|
|
Rs.
|
5.00
|
|
|
1 to 4 years
|
|
5 years
|
DRL 2007 Plan
|
|
|
85,142
|
|
|
Rs.
|
5.00
|
|
|
1 to 4 years
|
|
5 years
|
DRL 2007 Plan
|
|
|
61,700
|
|
|
Rs.
|
2,814.00
|
|
|
1 to 4 years
|
|
5 years
|
DRL 2018 Plan
|
|
|
167,500
|
|
|
Rs.
|
2,814.00
|
|
|
1 to 4 years
|
|
5 years
|
The above grants were
made on May 16, 2019.
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.
DR. REDDY’S LABORATORIES LIMITED
AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
(in millions, except share and per share
data and where otherwise stated)
|
19.
|
Employee stock incentive plans (continued)
|
The weighted average
inputs used in computing the fair value of such grants were as follows:
|
|
May 19, 2020
|
|
|
May 19, 2020
|
|
|
May 16, 2019
|
|
|
May 16, 2019
|
|
Expected volatility
|
|
|
29.12
|
%
|
|
|
30.47
|
%
|
|
|
28.25
|
%
|
|
|
29.29
|
%
|
Exercise price
|
|
Rs.
|
3,679.00
|
|
|
Rs.
|
5.00
|
|
|
Rs.
|
2,814.00
|
|
|
Rs.
|
5.00
|
|
Option life
|
|
|
5.0 Years
|
|
|
|
2.5 Years
|
|
|
|
5.0 Years
|
|
|
|
2.5 Years
|
|
Risk-free interest rate
|
|
|
5.67
|
%
|
|
|
4.62
|
%
|
|
|
7.14
|
%
|
|
|
6.76
|
%
|
Expected dividends
|
|
|
0.68
|
%
|
|
|
0.68
|
%
|
|
|
0.71
|
%
|
|
|
0.71
|
%
|
Grant date share price
|
|
Rs.
|
3,700.00
|
|
|
Rs.
|
3,700.00
|
|
|
Rs.
|
2,801.00
|
|
|
Rs.
|
2,801.00
|
|
Share-based payment
expense
|
|
For the six months
ended September 30,
|
|
|
For the three months
ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Equity settled share-based payment expense(1)
|
|
Rs.
|
304
|
|
|
Rs.
|
272
|
|
|
Rs.
|
161
|
|
|
Rs.
|
136
|
|
Cash settled share-based payment expense(2)
|
|
|
123
|
|
|
|
38
|
|
|
|
72
|
|
|
|
31
|
|
|
|
Rs.
|
427
|
|
|
Rs.
|
310
|
|
|
Rs.
|
233
|
|
|
Rs.
|
167
|
|
|
(1)
|
As of September 30, 2020 and 2019, there was Rs.979 and Rs.786,
respectively, of total unrecognized compensation cost related to unvested stock options. This cost is expected to be recognized
over a weighted-average period of 2.16 years and 2.11 years, respectively.
|
|
(2)
|
Certain of the Company’s employees are eligible to
receive share based payment awards that are settled in cash. These awards would vest only upon satisfaction of certain service
conditions which range from 1 to 4 years. These awards entitle the employees to a cash payment on the vesting date. The amount of
the cash payment is determined based on the price of the Company’s ADSs at the time of vesting. As of September 30, 2020
and 2019, there was Rs.219 and Rs.148, respectively, of total unrecognized compensation cost related to unvested awards. This cost
is expected to be recognized over a weighted-average period of 2.12 years and 2.18 years, respectively. This scheme does not involve
dealing in or subscribing to or purchasing securities of the Company, directly or indirectly.
|
The Company has entered into transactions with the following
related parties:
|
·
|
Green
Park Hotel and Resorts Limited for hotel services;
|
|
·
|
Green
Park Hospitality Services Private Limited for catering and other services;
|
|
·
|
Dr.
Reddy’s Foundation towards contributions for social development;
|
|
·
|
Kunshan
Rotam Reddy Pharmaceuticals Company Limited for sales of goods and for research and development services;
|
|
·
|
Pudami
Educational Society towards contributions for social development;
|
|
·
|
Indus
Projects Private Limited for engineering services relating to civil works;
|
|
·
|
CERG
Advisory Private Limited for professional consulting services;
|
|
·
|
Dr.
Reddy’s Institute of Life Sciences for research and development services;
|
|
·
|
AverQ
Inc. for professional consulting services;
|
|
·
|
Shravya
Publications Pvt. Ltd. for professional consulting services;
|
|
·
|
Cancelled
Plans LLP for the sale of scrap materials;
|
|
·
|
Araku
Originals Private Limited for the purchase of coffee powder;
|
|
·
|
DRES
Energy Private Limited for the purchase of solar power; and
|
|
·
|
Stamlo
Industries Limited for hotel services.
|
These are enterprises
over which key management personnel have control or significant influence. “Key management personnel” consists of the
Company’s Directors and members of the Company’s Management Council.
The Company has also
entered into cancellable operating lease transactions with key management personnel and close members of their families.
Further, the Company
contributes to the Dr. Reddy’s Laboratories Gratuity Fund, which maintains the plan assets of the Company’s Gratuity
Plan for the benefit of its employees.
DR. REDDY’S LABORATORIES LIMITED
AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
(in millions, except share and per share
data and where otherwise stated)
|
20.
|
Related parties (continued)
|
The following is a
summary of significant related party transactions:
|
|
For the six months
ended September 30,
|
|
|
For the three months
ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Research and development services received
|
|
Rs.
|
52
|
|
|
Rs.
|
78
|
|
|
Rs.
|
25
|
|
|
Rs.
|
52
|
|
Sale of goods
|
|
|
21
|
|
|
|
11
|
|
|
|
21
|
|
|
|
10
|
|
Lease rentals received
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
*
|
|
|
-
|
|
Research and development services provided
|
|
|
-
|
|
|
|
58
|
|
|
|
-
|
|
|
|
33
|
|
Lease rentals paid
|
|
|
19
|
|
|
|
18
|
|
|
|
10
|
|
|
|
9
|
|
Catering expenses paid
|
|
|
139
|
|
|
|
175
|
|
|
|
67
|
|
|
|
83
|
|
Hotel expenses paid
|
|
|
4
|
|
|
|
11
|
|
|
|
-
|
*
|
|
|
5
|
|
Facility management services paid
|
|
|
18
|
|
|
|
-
|
|
|
|
9
|
|
|
|
-
|
|
Purchase of Solar power
|
|
|
68
|
|
|
|
-
|
|
|
|
34
|
|
|
|
-
|
|
Civil works
|
|
|
15
|
|
|
|
48
|
|
|
|
13
|
|
|
|
46
|
|
Contributions towards social development
|
|
|
116
|
|
|
|
118
|
|
|
|
58
|
|
|
|
81
|
|
Salaries to relatives of key management personnel
|
|
|
5
|
|
|
|
4
|
|
|
|
2
|
|
|
|
1
|
|
Others
|
|
|
1
|
|
|
|
3
|
|
|
|
1
|
|
|
|
1
|
|
* Rounded to the nearest
million.
The Company had the following
amounts due from related parties as at the following dates:
|
|
As of
|
|
|
|
September 30, 2020
|
|
|
March 31, 2020
|
|
Key management personnel and close members of their families
|
|
Rs.
|
8
|
|
|
Rs.
|
8
|
|
Other related parties
|
|
|
46
|
|
|
|
68
|
|
The Company had the following amounts due
to related parties as at the following dates:
|
|
As of
|
|
|
|
September 30, 2020
|
|
|
March 31, 2020
|
|
Due to related parties
|
|
Rs.
|
49
|
|
|
Rs.
|
91
|
|
The following table
describes the components of compensation paid or payable to key management personnel for the services rendered during the applicable
period:
|
|
For the six months
ended September 30,
|
|
|
For the three months
ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Salaries and other benefits
|
|
Rs.
|
375
|
|
|
Rs.
|
315
|
|
|
Rs.
|
179
|
|
|
Rs.
|
154
|
|
Contributions to defined contribution plans
|
|
|
17
|
|
|
|
17
|
|
|
|
9
|
|
|
|
8
|
|
Commission to directors
|
|
|
170
|
|
|
|
130
|
|
|
|
85
|
|
|
|
55
|
|
Share-based payments expense
|
|
|
121
|
|
|
|
79
|
|
|
|
67
|
|
|
|
43
|
|
|
|
Rs.
|
683
|
|
|
Rs.
|
541
|
|
|
Rs.
|
340
|
|
|
Rs.
|
260
|
|
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.
DR. REDDY’S LABORATORIES LIMITED
AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
(in millions, except share and per share
data and where otherwise stated)
|
21.
|
Financial instruments
|
Financial instruments by category
The carrying value and fair value
of financial instruments as at September 30, 2020 and March 31, 2020 were as follows:
|
|
As of September 30, 2020
|
|
|
As of March 31, 2020
|
|
|
|
Total carrying
value
|
|
|
Total
fair value
|
|
|
Total carrying
value
|
|
|
Total fair value
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
Rs.
|
3,889
|
|
|
Rs.
|
3,889
|
|
|
Rs.
|
2,053
|
|
|
Rs.
|
2,053
|
|
Other investments(1)
|
|
|
22,185
|
|
|
|
22,185
|
|
|
|
24,015
|
|
|
|
24,015
|
|
Trade and other receivables
|
|
|
50,335
|
|
|
|
50,335
|
|
|
|
52,015
|
|
|
|
52,015
|
|
Derivative financial assets
|
|
|
985
|
|
|
|
985
|
|
|
|
1,105
|
|
|
|
1,105
|
|
Other assets(2)
|
|
|
3,583
|
|
|
|
3,583
|
|
|
|
4,170
|
|
|
|
4,170
|
|
Total
|
|
Rs.
|
80,977
|
|
|
Rs.
|
80,977
|
|
|
Rs.
|
83,358
|
|
|
Rs.
|
83,358
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other payables
|
|
Rs.
|
22,833
|
|
|
Rs.
|
22,833
|
|
|
Rs.
|
16,659
|
|
|
Rs.
|
16,659
|
|
Derivative financial liabilities
|
|
|
597
|
|
|
|
597
|
|
|
|
1,602
|
|
|
|
1,602
|
|
Long-term borrowings
|
|
|
7,476
|
|
|
|
7,476
|
|
|
|
5,570
|
|
|
|
5,570
|
|
Short-term borrowings
|
|
|
19,852
|
|
|
|
19,852
|
|
|
|
16,441
|
|
|
|
16,441
|
|
Bank overdraft
|
|
|
101
|
|
|
|
101
|
|
|
|
91
|
|
|
|
91
|
|
Other liabilities and provisions(3)
|
|
|
24,749
|
|
|
|
24,749
|
|
|
|
25,317
|
|
|
|
25,317
|
|
Total
|
|
Rs.
|
75,608
|
|
|
Rs.
|
75,608
|
|
|
Rs.
|
65,680
|
|
|
Rs.
|
65,680
|
|
|
(1)
|
Interest accrued but not due on investments is included
in other assets.
|
|
(2)
|
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.12,863
and Rs.11,070 as of September 30, 2020 and March 31, 2020, respectively, are not included.
|
|
(3)
|
Other liabilities and provisions that are not financial
liabilities (such as statutory dues payable, deferred revenue, advances from customers and certain other accruals) of Rs.11,070
and Rs.10,725 as of September 30, 2020 and March 31, 2020, 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, 2020:
Particulars
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
FVTPL - Financial asset - Investments in units of mutual funds
|
|
Rs.
|
16,015
|
|
|
Rs.
|
-
|
|
|
Rs.
|
-
|
|
|
Rs.
|
16,015
|
|
FVTOCI - Financial asset - Investment in equity securities
|
|
|
483
|
|
|
|
-
|
|
|
|
-
|
|
|
|
483
|
|
FVTOCI - Financial asset - Investment in market linked debentures
|
|
|
956
|
|
|
|
-
|
|
|
|
-
|
|
|
|
956
|
|
Derivative financial instruments – net loss on outstanding foreign exchange forward, option, swap contracts and interest rate swap contracts(1)
|
|
|
-
|
|
|
|
388
|
|
|
|
-
|
|
|
|
388
|
|
Contingent consideration pursuant to the Business Transfer Agreement with Wockhardt Limited (Refer to Note 24 for details)
|
|
|
|
|
|
|
|
|
|
|
561
|
|
|
|
561
|
|
DR. REDDY’S LABORATORIES LIMITED
AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
INTERIM FINANCIAL STATEMENTS
(in millions, except share and per share
data and where otherwise stated)
|
21.
|
Financial instruments (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, 2020:
Particulars
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
FVTPL - Financial asset - Investments in units of mutual funds
|
|
Rs.
|
13,832
|
|
|
Rs.
|
-
|
|
|
Rs.
|
-
|
|
|
Rs.
|
13,832
|
|
FVTOCI - Financial asset - Investment in equity securities
|
|
|
303
|
|
|
|
-
|
|
|
|
-
|
|
|
|
303
|
|
FVTOCI - Financial asset - Investment in market linked debentures
|
|
|
1,993
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,993
|
|
Derivative financial instruments – net loss on outstanding foreign exchange forward, option, swap contracts and interest rate swap contracts(1)
|
|
|
-
|
|
|
|
(497
|
)
|
|
|
-
|
|
|
|
(497
|
)
|
|
(1)
|
The Company enters into derivative financial instruments
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 forward rates, interest rate curves
and forward rate curves.
|
As at September 30,
2020 and March 31, 2020, 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.
Hedges of foreign currency exchange
rate risks
The Company is exposed
to exchange rate risk which arises from its foreign exchange revenues and expenses, primarily in U.S. dollars, U.K. pounds sterling,
Russian roubles, Brazilian reals, Swiss francs, South African rands, Kazakhstan tenges, Romanian new leus and Euros, and foreign
currency debt in U.S. dollars, South African rands, Russian roubles, Brazilian reals and Mexican pesos.
The Company uses foreign
exchange forward contracts, option contracts and swap contracts (derivative financial instruments) 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. Non-derivative financial instruments consist of investments in mutual funds, bonds and market
linked debentures, commercial papers, equity and debt securities, trade receivables, cash and cash equivalents, loans and borrowings,
and trade payables.
Details of gain/(loss) recognized in
respect of derivative contracts
The following table
presents details in respect of the gain/(loss) recognized in respect of derivative contracts during the applicable period ended:
|
|
For the six months
ended September 30,
|
|
|
For the three months
ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Net gain/(loss) recognized in finance costs in respect of foreign exchange derivative contracts and cross currency interest rate swaps contracts
|
|
Rs.
|
1,386
|
|
|
Rs.
|
(315
|
)
|
|
Rs.
|
1,882
|
|
|
Rs.
|
(287
|
)
|
Net gain/(loss) recognized in equity in respect of hedges of highly probable forecast transactions
|
|
|
917
|
|
|
|
(271
|
)
|
|
|
446
|
|
|
|
(187
|
)
|
Net gain/(loss) reclassified from equity and recognized as component of revenue occurrence of forecasted transaction
|
|
|
(93
|
)
|
|
|
66
|
|
|
|
51
|
|
|
|
25
|
|
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.195
as at September 30, 2020, as compared to a loss of Rs.721 as at March 31, 2020.
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)
The Company is involved
in disputes, lawsuits, claims, governmental and/or regulatory inspections, inquiries, investigations and proceedings (collectively,
“Legal Proceedings”), including patent and commercial matters that arise from time to time in the ordinary course of
business. 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 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 Legal Proceedings were to result in judgments against the Company,
such judgments could be material to its results of operations in a given period.
Note 32 to the Consolidated
Financial Statements in the Company’s Annual Report on Form 20-F for the year ended March 31, 2020 contains a summary of
significant Legal Proceedings. The following is a summary, as of the date of this quarterly report, of significant developments
in those proceedings as well as any new significant proceedings commenced since the date such Annual Report on Form 20-F was filed.
Product and patent related matters
Launch of product
On June 14, 2018,
the U.S. FDA granted the Company final approval for buprenorphine and naloxone sublingual film, 2 mg/0.5 mg, 4 mg/1 mg, 8 mg/2
mg, and 12 mg/3 mg dosages, a therapeutic equivalent generic version of Suboxone® sublingual film. The U.S. FDA approval came
after the conclusion of litigation in the U.S. District Court for the District of Delaware (the “Delaware District Court”),
where the Delaware District Court held that patents covering Suboxone® sublingual film would not be infringed by the Company’s
commercial launch of its generic sublingual film product. In light of the favorable decision from the Delaware District Court,
the Company launched its generic sublingual film product in the United States immediately following the U.S. FDA approval on June
14, 2018. On July 12, 2019, the U.S. Court of Appeals for the Federal Circuit (“the Court of Appeals”) affirmed the
Delaware District Court’s ruling that the Company’s generic version of Suboxone® sublingual films did not infringe
the two remaining patents at issue in the Delaware District Court’s case (U.S. patent numbers 8,603,514 and 8,015,150).
After the Delaware
District Court’s decision, Indivior filed a second lawsuit against the Company alleging infringement of three additional
U.S. patents (numbers 9,687,454, 9,855,221 and 9,931,305) in the U.S. District Court for the District of New Jersey (the “New
Jersey District Court”), styled Indivior Inc. et al. v. Dr. Reddy’s Laboratories S.A., Civil Action No. 2:17-cv-07111
(D.N.J.). Following the launch, on June 15, 2018, Indivior filed an emergency application for a temporary restraining order and
preliminary injunction against the Company in the New Jersey District Court. Indivior’s motion alleged that the Company’s
generic sublingual film product infringed one of three U.S. patents (number 9,931,305) at issue in the New Jersey District Court.
Pending a hearing and decision on the injunction application, the New Jersey District Court initially issued a temporary restraining
order against the Company with respect to further sales, offer for sales, and imports of its generic sublingual film product in
the United States. Subsequently, on July 14, 2018, the New Jersey District Court granted a preliminary injunction in favor of Indivior.
Under the order, Indivior was required to and did post a bond of U.S.$72 to pay the costs and damages sustained by the Company
if it was found to be wrongfully enjoined. The Company immediately appealed the decision, and the Court of Appeals agreed to expedite
the appeal.
On November 20, 2018,
the Court of Appeals issued a decision vacating the preliminary injunction. The Court of Appeals denied Indivior’s petition
for rehearing on February 4, 2019.
Indivior subsequently
filed two emergency motions in the Court of Appeals to stay issuance of the mandate and to keep the preliminary injunction in place,
which the Court of Appeals denied. Indivior then petitioned the U.S. Supreme Court to stay issuance of the mandate.
Indivior’s petition
was denied by the Chief Justice of the U.S. Supreme Court on February 19, 2019, and the mandate was issued on the same day. The
Company resumed sales of its generic sublingual film product after the mandate was issued.
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.
|
Contingencies (continued)
|
On February 19, 2019,
the New Jersey District Court entered a stipulated order of dismissal of Indivior’s claims under U.S. patent number 9,855,221.
On November 5, 2019, the New Jersey District Court issued its claim construction decision construing certain terms in U.S. patent
numbers 9,931,305 and 9,687,454. After such claim construction decision, on January 8, 2020, the New Jersey District Court entered
a stipulated order that the Company’s generic sublingual film product does not infringe the asserted claims in U.S. patent
number 9,931,305. In the stipulated order, Indivior reserved the ability to appeal the New Jersey District Court’s claim
construction order. On August 24, 2020, the New Jersey District Court denied the Company’s motion requesting that the court
enter partial final judgment in the Company’s favor relating to the allegations of infringement of U.S. patent number 9,931,305.
On November 11, 2019,
a Magistrate Judge in the District of New Jersey granted the Company leave to file a counterclaim against Indivior that alleges
that Indivior engaged in anticompetitive conduct by making false or misleading statements to the New Jersey District Court during
the preliminary injunction proceedings in violation of federal antitrust laws. On August 24, 2020, the New Jersey District Court
denied Indivior’s appeal of the Magistrate Judge’s ruling. The Court has ordered that discovery on the Company’s
counterclaim will proceed uninterrupted, and that there will be separate trials to address the antitrust claim and Indivior’s
only remaining infringement claims, regarding U.S. patent number 9,687,454.
The parties continue
to litigate Indivior’s allegation that the Company’s generic sublingual film products infringe any valid claim of U.S.
patent number 9,687,454, with such litigation ongoing before the New Jersey District Court and the Patent Trial and Appeal Board
(“PTAB”).
In the PTAB, on November
13, 2018, the Company filed two petitions for inter-partes review challenging the validity of certain claims of U.S. patent number
9,687,454 before the PTAB. On June 13, 2019, the PTAB agreed to institute inter-partes review on one of the two petitions filed
by the Company. The PTAB heard oral argument in the pending inter-partes review challenge on March 3, 2020.
On June 2, 2020, the
PTAB issued a final written decision in the Company’s favor finding that the Company had demonstrated that claims 1–5,
7, and 9–14 of the ’454 patent were unpatentable. The PTAB upheld the validity of only one of the challenged claims,
claim 8. Additionally, claim 6 was not at issue in the inter-partes review and therefore not subject to the final written decision.
Claims 6 and 8 remain asserted against the Company in the New Jersey District Court litigation. The PTAB’s decision becomes
effective after the time for Indivior to appeal has expired or after any appeal taken by Indivior has concluded.
The Company intends
to vigorously defend its positions and pursue a claim for damages caused by the preliminary injunction. Any liability that may
arise on account of this litigation is unascertainable. Accordingly, no provision was made in the interim financial statements
of the Company.
Matters relating to National Pharmaceutical Pricing Authority
Litigation relating to Cardiovascular and Anti-diabetic formulations
As previously disclosed,
the Company is involved in legal proceedings with India’s National Pharmaceutical Pricing Authority regarding allegations
that the Company violated the maximum prices permissible for various formulations in the cardiovascular and anti-diabetic therapeutic
areas under applicable price control regulations. Following the adjournment of a hearing before the Delhi High Court which had
been scheduled in June 2020, the Company is awaiting notification of a new hearing date.
Other product and patent related matters
Namenda Litigation
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 seeks 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.
On
August 23, 2020, the Company entered into a settlement agreement with Sergeants under which the Company would pay U.S.$0.4 in exchange
for a release of claims from the putative end-payor class. This settlement is subject to court approval.
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.
|
Contingencies (continued)
|
Following
the settlement agreement, the Company recognized such amount in the unaudited condensed consolidated interim income statement for
the three months ended September 30, 2020.
On
November 5, 2019 plaintiffs MSP Recovery Claims, Series LLC and MSPA Claims 1, LLC filed suit against the Company and other drug
manufacturers in the United States District Court for the Southern District of New York. The claims in this complaint were similar
in nature to the claims in the Sergeants lawsuit, and those cases were coordinated for discovery purposes. On April 14, 2020, with
the consent of the Company and the other defendants, plaintiffs MSP Recovery Claims, Series LLC and MSPA Claims 1, LLC voluntarily
dismissed their claims without prejudice.
Other
class action complaints containing similar allegations to the Sergeants complaint have also been filed in the U.S. District Court
for the Southern District of New York. However, apart from the Sergeants case described above, there are no such class actions
that are pending and that name the Company as a defendant.
In
addition, the State of New York filed an antitrust case in the U.S. District Court for 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, apart from the settlement payment described above, that may arise on account
of alleged violation of federal antitrust laws is not probable.
Ranitidine Recall and Litigation
On
October 1, 2019, the Company initiated a voluntary nationwide retail (at the retail level for over-the-counter products and at
the consumer level for prescription products) of all of its ranitidine medications sold in the United States due to the presence
of N-Nitrosodimethylamine (“NDMA”) above levels established by the U.S. FDA. NDMA is classified as a probable human
carcinogen (a substance that could cause cancer) based on results from laboratory tests. On November 1, 2019, the U.S. FDA issued
a statement indicating that it had found levels of NDMA in ranitidine from its testing generally that were “similar to the
levels you would expect to be exposed to if you ate common foods like grilled or smoked meats.” See https://www.fda.gov/news-events/press-announcements/statement-new-testing-results-including-low-levels-impurities-ranitidine-drugs.
The U.S. FDA has indicated that its investigation and testing continue. On April 1, 2020, the U.S. FDA issued a press release
announcing that it was requesting manufacturers to withdraw all prescription and over-the-counter ranitidine drugs from the market
immediately. The U.S. FDA stated that it “has determined that the impurity in some ranitidine products increases over time
and when stored at higher than room temperatures may result in consumer exposure to unacceptable levels of this impurity.”
See https://www.fda.gov/safety/medical-product-safety-information/all-ranitidine-products-zantac-press-release-fda-requests-removal?utm_campaign=FDA%20MedWatch.
As
referenced in Note 32 of the Company’s Form 20-F for the year ended March 31, 2020, multiple ranitidine related complaints
were filed against the parent company, one of the Company’s U.S. subsidiaries and the Company’s Swiss subsidiary, along
with numerous other pharmaceutical manufacturers and retailers. These complaints were subsumed by the June 22, 2020, filing of
three new master complaints – a Master Personal Injury Complaint, a Consolidated Consumer Class Action Complaint and a Consolidated
Third-Party Payor Class Action Complaint, in the ranitidine multidistrict litigation (“MDL”) located in the United
States District Court for the Southern District of Florida. More than 70 short-form complaints from individual plaintiffs have
been filed against the Company in the MDL, and the Company anticipates many additional claims.
During
the quarter ended June 30, 2020, the New Mexico State Attorney General filed suit against the Company’s U.S. subsidiary,
and multiple other manufacturers and retailers. The Company has joined in an effort to transfer the case to the MDL, and the New
Mexico State Attorney General opposes such transfer to the MDL.
The
Company believes that all of the aforesaid complaints and asserted claims are without merit, denies any wrongdoing and intends
to vigorously defend itself against the allegations. Also, any liability that may arise on account of these claims is unascertainable.
Accordingly, no provision was made in these interim financial statements of the Company.
United States Antitrust Multi-District
Litigation
As previously disclosed,
the Attorneys General for forty-nine U.S. States, plus the District of Columbia and the Commonwealth of Puerto Rico, filed a lawsuit
asserting claims against a number of pharmaceutical companies, including the Company’s subsidiary, Dr. Reddy’s Laboratories,
Inc., alleging conspiracies to fix prices and to allocate bids and customers, and such case was subsequently consolidated with
certain private plaintiff class actions in a multi-district litigation (“MDL”) in the United States District Court
for the Eastern District of Pennsylvania, MDL 2724, In re Generic Pharmaceuticals Antitrust Pricing Litigation (the “MDL-2724”).
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.
|
Contingencies (continued)
|
Antitrust Case Filed by Rite Aid Corporation
and Rite Aid HdqtRs. Corp.
On July 9, 2020, Rite
Aid Corporation and Rite Aid Hdqtrs Corp. filed a complaint on their own behalf, and as assignee of McKesson Corporation with regard
to drugs sold by McKesson to Rite Aid, against the Company’s U.S. subsidiary and forty-six other defendants, involving a
total of one hundred thirty-five generic drugs, alleging an “overarching conspiracy” to fix prices and to rig bids
and allocate customers with respect to these drugs. The Company’s U.S. subsidiary is specifically named with respect to nine
drugs: ciprofloxacin ER, divalproex ER, fluconazole, glimepiride, meprobamate, oxaprozine, paricalcitol, tizanidine and zoledronic
acid. Plaintiffs also allege that the Company’s U.S. subsidiary was part of a larger “overarching conspiracy”
with all other manufacturers named as to all of the drugs named in the complaint; and, alternatively, was part of an overarching
conspiracy with eighteen of the defendants named with regard to forty-five of the drugs named. The complaint also alleges violations
of Section 1 of the Sherman Act, 15 U.S.C. §1. The complaint seeks injunctive relief, recovery of treble damages, and attorney’s
fees and costs against all defendants on a joint and several basis. The Company denies any wrongdoing and intends to vigorously
defend against these claims.
Antitrust Complaint
Filed by Suffolk County, New York
On August 27, 2020,
Suffolk County, New York, filed a complaint against the Company’s U.S. subsidiary and forty-six other defendants, involving
a total of one hundred thirty generic drugs, alleging an “overarching conspiracy” to fix prices and to rig bids and
allocate customers with respect to these drugs. The Company’s U.S. subsidiary is specifically named with respect to twelve
drugs: ciprofloxacin ER, divalproex ER, fenofibrate, fluconazole, glimepiride, glyburide, metformin, oxaprozin, pravastatin, ranitidine,
tizanidine and zoledronic acid. Plaintiffs also allege that the Company’s U.S. subsidiary was part of a larger “overarching
conspiracy” with all other manufacturers named as to all of the drugs named in the complaint. The complaint alleges violations
of Section 1 of the Sherman Act, 15 U.S.C. §1. The complaint seeks injunctive relief, recovery of treble damages, and attorney’s
fees and costs against all defendants on a joint and several basis. The Company denies any wrongdoing and intends to vigorously
defend against these claims.
Antitrust Complaint
Filed by J M Smith
On September 4, 2020,
J M Smith Corporation, as assignee of Burlington Drug Company, filed a complaint against the Company’s U.S. subsidiary and
fifty other defendants, involving a total of one hundred thirty generic drugs, alleging an “overarching conspiracy”
to fix prices and to rig bids and allocate customers with respect to these drugs. The Company’s U.S. subsidiary is specifically
named with respect to eleven drugs: allopurinol, ciprofloxacin ER, divalproex ER, fluconazole, glimepiride, meprobamate, oxaprozin,
paricalcitol ranitidine, tizanidine and zoledronic acid. Plaintiffs also allege that the Company’s U.S. subsidiary was part
of a larger “overarching conspiracy” with all other manufacturers named as to all of the drugs named in the complaint.
The complaint alleges violations of Section 1 of the Sherman Act, 15 U.S.C. §1. The complaint seeks injunctive relief, recovery
of treble damages, and attorney’s fees and costs against all defendants on a joint and several basis. The Company denies
any wrongdoing and intends to vigorously defend against these claims.
The Company believes
that all of the aforesaid complaints and asserted claims are without merit and intends to vigorously defend itself against the
allegations. Also, any liability that may arise on account of these claims is unascertainable. Accordingly, no provision was made
in the interim financial statements of the Company.
Civil Litigation and Arbitration with
Hatchtech Pty Limited
On September 25, 2020,
the Company’s wholly owned Swiss subsidiary, Dr. Reddy’s Laboratories, S.A., filed an action in Delaware Chancery Court
against Hatchtech Pty Limited (“Hatchtech”) to rescind the September 7, 2015, Asset Purchase Agreement with Hatchtech,
pursuant to which the Company’s subsidiary acquired the patented product Xeglyze®, a topical lousicidal lotion for the
treatment of head lice. On October 8, 2020, Hatchtech filed an arbitration demand against the Company’s subsidiary before
the American Arbitration Association in New York City. Based on its best estimate, the Company has recorded a provision for potential
liability of Rs.728.
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)
|
23.
|
Merger of Dr. Reddy’s Holdings Limited into Dr.
Reddy’s Laboratories Limited
|
The
Board of Directors, at its meeting held on July 29, 2019, has approved the amalgamation (the “Scheme”) of Dr. Reddy’s
Holdings Limited (“DRHL”), an entity held by the Promoter Group, which holds 24.88% of Dr. Reddy’s Laboratories
Limited (the “Company”) into the Company. This is subject to the approval of shareholders, stock exchanges, the National
Company Law Tribunal and other relevant regulators.
The
Scheme will lead to simplification of the shareholding structure and reduction of shareholding tiers.
The
Promoter Group cumulatively would continue to hold the same number of shares in the Company, pre- and post the amalgamation. All
costs, charges and expenses relating to the Scheme will be borne out of the surplus assets of DRHL. Further, any expense, if exceeding
the surplus assets of DRHL, will be borne directly by the Promoters.
The
Scheme also provides that the Promoters of the Company will jointly and severally indemnify, defend and hold harmless the Company,
its directors, employees, officers, representatives, or any other person authorized by the Company (excluding the Promoters) for
any liability, claim, or demand, which may devolve upon the Company on account of this amalgamation.
The
Scheme of Amalgamation of DRHL with the Company was filed with BSE and NSE (Stock Exchanges) for their consideration and approval.
No observation letters were received from the stock exchanges on the basis of no comments received from SEBI on October 11, 2019.
The Company has filed an application with the Hon’ble National Company Law Tribunal (“NCLT”) Hyderabad, seeking
direction for conducting court convened meetings of the shareholders and unsecured creditors. The NCLT in its order dated November
22, 2019 directed the Company to conduct meetings of the shareholders’ and creditors. The NCLT also appointed the Chairpersons
and Scrutinizers for the respective meetings. The notice convening the shareholders and unsecured creditors meetings on January
2, 2020, were circulated within statutory timelines for approval of Scheme of Amalgamation of DRHL with the Company.
The
resolutions were passed with requisite majority of shareholders (99.98%) and unsecured creditors (100%) at the respective shareholders
and unsecured creditors meetings on January 2, 2020. The petition for approval of the Scheme has been filed with Hon’ble
NCLT on January 9, 2020. The NCLT hearing on June 3, 2020 has been adjourned and a new date is yet to be scheduled.
|
24.
|
Business Transfer Agreement with Wockhardt Limited
|
In
February 2020, the Company entered into a Business Transfer Agreement (“BTA”) with Wockhardt Limited (“Wockhardt”)
to acquire select divisions of its branded generics business in India and the territories of Nepal, Sri Lanka, Bhutan and Maldives
for a consideration of Rs.18,500.
As
of March 31, 2020, the acquisition of this Business Undertaking was subject to certain closing conditions, such as approval from
shareholders and lenders of Wockhardt and other requisite approvals under applicable statutes. Hence, the transaction was not accounted
for in the year ended March 31, 2020.
Due
to the COVID-19 pandemic and the consequent government restrictions, there has been a reduction in the revenue from the sales of
the products forming part of the Business Undertaking during March and April 2020. Accordingly, through an amendment to the BTA,
the Company and Wockhardt agreed that the consideration shall now be upto Rs.18,500, to be paid as per the following terms:
|
a)
|
an amount of Rs.14,830 to be paid on the date of closing;
|
|
b)
|
an amount of Rs.670 to be deposited in an escrow account
which shall be released subject to adjustments for, inter alia, net working capital, employee liabilities and certain other contractual
and statutory liabilities;
|
|
c)
|
an amount of Rs.3,000 (the “Holdback Amount”)
which shall be released as follows:
|
|
·
|
If
the revenue from sales of the products forming part of the Business Undertaking during the twelve (12) months post-closing exceeds
Rs.4,800, the Company will be required to pay to Wockhardt, an amount equal to two (2) times the amount by which the revenue exceeds
Rs.4,800, subject to the maximum of the Holdback Amount.
|
The
business consists of a portfolio of 62 brands in multiple therapy areas, such as respiratory, neurology, venous malformations,
dermatology, gastroenterology, pain and vaccines. This entire portfolio was to be transferred to the Company, along with related
sales and marketing teams, the manufacturing plant located in Baddi, Himachal Pradesh and all plant employees (together the “Business
Undertaking”). The transaction involved 2,051 employees engaged in operations of the acquired Business Undertaking.
The
acquisition is in line with the Company's strategic focus on India and has paved a path for accelerated growth and leadership in
the domestic Indian market. The Company believes that the acquired Business Undertaking offers to strengthen the Company’s
pharmaceutical portfolio / products in the Indian market.
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.
|
Business Transfer Agreement with Wockhardt Limited (continued)
|
The
transaction was completed on June 10, 2020.
The
Company has accounted for the transaction under IFRS 3, “Business Combinations”.
As
of June 30, 2020, the purchase price allocation (“PPA”) was preliminary.
During
the three months ended September 30, 2020, the Company completed the PPA and tabulated below are the fair values of the assets
acquired including goodwill, and liabilities assumed on the acquisition date:
Particulars
|
|
Amount
|
|
Cash
|
|
|
14,990
|
|
Payment through Escrow account
|
|
|
564
|
|
Contingent consideration (Holdback Amount)
|
|
|
561
|
|
Total consideration
|
|
|
16,115
|
|
Assets acquired
|
|
|
|
|
Goodwill
|
|
|
530
|
|
Property, plant and equipment
|
|
|
373
|
|
Product related intangibles
|
|
|
14,888
|
|
Inventories
|
|
|
466
|
|
Other assets
|
|
|
245
|
|
Liabilities assumed
|
|
|
|
|
Employee benefits
|
|
|
(145
|
)
|
Refund liability
|
|
|
(242
|
)
|
Total net assets
|
|
|
16,115
|
|
The
total goodwill of Rs.530 consists largely of the synergies and economies of scale expected from acquired business, together with
the value of workforce acquired. The entire amount of goodwill is deductible for tax purposes.
Acquisition
related costs amounted to Rs.60 and were excluded from the consideration transferred and were recognized as expense under “Selling,
general and administrative expenses” in the interim income statements for the six months ended September 30, 2020.
The
fair value of the contingent consideration of Rs.561 was estimated by applying the income approach. The fair value measurement
is based on significant inputs that are not observable in the market, which IFRS 13, “Fair Value Measurement” refers
to as Level 3 inputs. The significant unobservable inputs in the valuation is the estimated sales forecast.
A
1% increase/(decrease) in the sales forecast would result in loss/(gain) in income statements by Rs.102. However, the maximum amount
of the Holdback Amount is Rs.3,000 as per the BTA.
The
amount of revenue included in the interim income statements for the six months ended September 30, 2020 since June 10, 2020
pertaining to the business is Rs.1,518.
The
business has been integrated into the Company’s existing activities and it is not practicable to identify the impact on the
Company profit in the period.
The
Company considered the uncertainty relating to the COVID-19 pandemic in assessing the recoverability of receivables, goodwill,
intangible assets, investments and other assets. For this purpose, the Company considered internal and external sources of information
up to the date of approval of these interim financial statements. The Company based on its judgments, estimates and assumptions
including sensitivity analysis, expects to fully recover the carrying amount of receivables, goodwill, intangible assets, investments
and other assets.
The
Company will continue to closely monitor any material changes to future economic conditions.
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.
|
Update on the warning letter from the U.S. FDA
|
Practices (“cGMPs”)
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.
Tabulated below are the
further updates with respect to the aforementioned sites:
Month and year
|
|
Update
|
February, March and April 2017
|
|
The U.S. FDA completed the re-inspection of the aforementioned manufacturing facilities. 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 Company’s oncology formulation manufacturing facility at Duvvada.
|
June 2017
|
|
The U.S. FDA issued an Establishment Inspection Report (“EIR”) which indicated that the inspection of the Company’s API manufacturing facility at Miryalaguda was successfully closed.
|
November 2017
|
|
The Company received EIRs from the U.S. FDA for the oncology manufacturing facility at Duvvada which indicated that the inspection status of this facility remained unchanged.
|
February 2018
|
|
The Company received EIRs from the U.S. FDA for API manufacturing facility at Srikakulam which indicated that the inspection status of this facility remained unchanged.
|
June 2018
|
|
The Company requested the U.S. FDA to schedule a re-inspection of the oncology formulation manufacturing facility at Duvvada.
|
October 2018
|
|
The re-inspection was completed for the oncology formulation manufacturing facility at Duvvada and the U.S. FDA issued a Form 483 with eight observations.
|
November 2018
|
|
The Company responded to the observations identified by the U.S. FDA for the oncology formulation manufacturing facility at Duvvada in October 2018.
|
February 2019
|
|
The U.S. FDA issued an EIR indicating successful closure of the audit of the oncology formulation manufacturing facility at Duvvada.
|
With respect to the
API manufacturing facility at Srikakulam, subsequent to the receipt of an EIR in February 2018, the Company was asked, in October
2018, to carry out certain detailed investigations and analyses and the Company submitted the results of the investigations and
analyses. As part of the review of the response by the U.S. FDA, certain additional follow on queries were received by the Company,
and the Company responded to all such queries in January 2019.
In February 2019,
the Company received certain other follow on questions from the U.S. FDA and the Company responded to these questions in March
2019. The U.S. FDA completed the audit on January 28, 2020. The Company was issued a Form 483 with 5 observations and responded
to the observations in February 2020. In May 2020, the Company received an EIR from the U.S. FDA, for the above-referred facility,
indicating closure of the audit and classifying the inspection of this facility as Voluntary Action Indicated (“VAI”).
With this, all facilities under warning letter are now determined as VAI.
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.
|
Update on the warning letter from the U.S. FDA (continued)
|
Inspection of other facilities:
Tabulated below are
the details of the U.S. FDA inspections carried out at other facilities of the Company:
Located in India
Month and year
|
|
Unit
|
|
Details of observations
|
June 2018
|
|
API Srikakulam Plant (SEZ)
|
|
No observations were noted. An EIR indicating the closure of audit for this facility was issued by the U.S. FDA in August 2018.
|
November 2018
|
|
Formulations Srikakulam Plant (SEZ) Unit II
|
|
No observations were noted. An EIR indicating the closure of audit for this facility was issued by the U.S. FDA in February 2019.
|
January 2019
|
|
Formulations Srikakulam Plant (SEZ) Unit I
|
|
Four observations were noted. The Company responded to the observations and an EIR indicating the closure of audit for this facility was issued by the U.S. FDA in April 2019.
|
January 2019
|
|
API manufacturing Plant at Miryalaguda, Nalgonda
|
|
One observation was noted. The Company
responded to the observation.
In May 2019, an EIR was issued by the U.S.
FDA indicating the closure of audit and the inspection classification of the facility was determined as VAI.
|
January 2019
|
|
Formulations manufacturing facility at Bachupally, Hyderabad
|
|
Eleven observations were noted. The Company
responded to the observations in January 2019.
In April 2019, an EIR was issued by the
U.S. FDA indicating the closure of audit and the inspection classification of the facility was determined as VAI.
|
March 2019
|
|
Aurigene Discovery Technologies Limited, Hyderabad
|
|
No observations noted.
In June 2019, the Company received an EIR
from the U.S. FDA indicating the closure of audit for this facility.
|
June 2019
|
|
Formulations manufacturing plants, Duvvada {Vizag SEZ plant 1 (FTO VII) and Vizag SEZ plant 2(FTO IX)}
|
|
Two observations were noted. The Company
responded to the observations.
In September 2019, an EIR was issued by
the U.S. FDA indicating the closure of audit of these facilities.
|
July 2019
|
|
API Hyderabad plant 2, Bollaram, Hyderabad
|
|
Five observations were noted during U.S.
FDA inspection. The Company responded to the observations in August 2019.
In October 2019, an EIR was issued by the
U.S. FDA indicating the closure of audit and the inspection classification of the facility was determined as VAI.
|
August 2019
|
|
Formulations manufacturing plants, (Vizag SEZ plant
1), Duvvada, Visakhapatnam
(FTO VII)
|
|
Eight observations were noted. The Company
responded to the observations in September 2019.
In February 2020, an EIR was issued by
the U.S. FDA indicating the closure of audit and the inspection classification of the facility was determined as VAI.
|
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.
|
Update on the warning letter from the U.S. FDA (continued)
|
Month and year
|
|
Unit
|
|
Details of observations
|
August 2019
|
|
Formulations manufacturing facility at Shreveport, Louisiana, U.S.A
|
|
No observations were noted.
In October 2019, an EIR was issued by the
U.S. FDA indicating the closure of the audit and the inspection classification of the facility was determined as No Action Initiated
(“NAI”).
|
October 2019
|
|
API Srikakulam plant (SEZ), Andhra Pradesh
|
|
Four observations were noted. The Company
responded to the observations in November 2019.
In May 2020, an EIR was issued by the U.S.
FDA indicating the closure of the audit.
|
February 2020
|
|
Formulations Srikakulam Plant (SEZ) Unit I
|
|
No observations were noted.
In May 2020, an EIR was issued by the U.S.
FDA indicating the closure of the audit and the inspection classification of the facility was determined as NAI.
|
February 2020
|
|
Formulations manufacturing facility at Bachupally, Hyderabad (FTO Unit III)
|
|
One observation was noted. The Company responded to the observation in March 2020. In May 2020, an EIR was issued by the U.S. FDA indicating the closure of the audit and the inspection classification of the facility was determined as VAI.
|
February 2020
|
|
Integrated Product Development Organization (IPDO) at Bachupally, Hyderabad
|
|
No observation was noted.
In May 2020, an EIR was issued by the U.S.
FDA indicating the closure of the audit and the inspection classification of the facility was determined as NAI.
|
March 2020
|
|
API manufacturing Plant at Miryalaguda, Nalgonda
|
|
Three observations were noted. The Company
responded to the observations in March 2020.
In April 2020, an EIR was issued by the
U.S. FDA indicating the closure of the audit and the inspection classification of the facility was determined as VAI.
|
No U.S. FDA audits
were conducted during the six months ended September 30, 2020.
|
a)
|
On October 22, 2020,
the Company informed the stock exchanges that it had experienced an information security incident and consequent isolation of
impacted IT services. This incident involved a ransom-ware attack. The Company promptly engaged leading outside cybersecurity
experts, launched a comprehensive containment and remediation effort and investigation to address the incident. As of date, the
Company's investigation has not ascertained if any data breaches in the incident pertain to personally identifiable information
stored in the Company's systems. Recovery and restoration of all applications and data is underway. All critical operations are
being enabled in a controlled manner.
|
|
b)
|
The Board of Directors
have also given their in principle approval for the potential secondary listing of American Depository Receipts (“ADRs”)
on NSE IFSC Limited (“NSE International Exchange”) subject to compliance of applicable laws and approval of concerned
authorities.
|
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, 2020, and the interim financial statements included in our report on Form 6-K for the three months ended June 30, 2020,
all of which are on file with the SEC, and the 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, 2020 compared to the three
months ended September 30, 2019
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,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
Rs. in
millions
|
|
|
% of
Revenues
|
|
|
Rs. in
millions
|
|
|
% of
Revenues
|
|
|
Increase/
(Decrease)
|
|
Revenues
|
|
Rs.
|
48,967
|
|
|
|
100.0
|
%
|
|
Rs.
|
48,009
|
|
|
|
100.0
|
%
|
|
|
2
|
%
|
Gross profit
|
|
|
26,409
|
|
|
|
53.9
|
%
|
|
|
27,620
|
|
|
|
57.5
|
%
|
|
|
(4
|
%)
|
Selling, general and administrative expenses
|
|
|
13,107
|
|
|
|
26.8
|
%
|
|
|
13,217
|
|
|
|
27.5
|
%
|
|
|
(1
|
%)
|
Research and development expenses
|
|
|
4,359
|
|
|
|
8.9
|
%
|
|
|
3,662
|
|
|
|
7.6
|
%
|
|
|
19
|
%
|
Impairment of non-current assets
|
|
|
781
|
|
|
|
1.6
|
%
|
|
|
3,560
|
|
|
|
7.4
|
%
|
|
|
(78
|
%)
|
Other income, net
|
|
|
(149
|
)
|
|
|
(0.3
|
%)
|
|
|
(135
|
)
|
|
|
(0.3
|
%)
|
|
|
10
|
%
|
Results from operating activities
|
|
|
8,311
|
|
|
|
17.0
|
%
|
|
|
7,316
|
|
|
|
15.2
|
%
|
|
|
14
|
%
|
Finance income, net
|
|
|
237
|
|
|
|
0.5
|
%
|
|
|
231
|
|
|
|
0.5
|
%
|
|
|
3
|
%
|
Share of profit of equity accounted investees, net of tax
|
|
|
73
|
|
|
|
0.1
|
%
|
|
|
117
|
|
|
|
0.2
|
%
|
|
|
(38
|
%)
|
Profit before tax
|
|
|
8,621
|
|
|
|
17.6
|
%
|
|
|
7,664
|
|
|
|
16.0
|
%
|
|
|
12
|
%
|
Tax expense / (benefit), net
|
|
|
998
|
|
|
|
2.0
|
%
|
|
|
(3,261
|
)
|
|
|
(6.8
|
%)
|
|
|
(131
|
%)
|
Profit for the period
|
|
Rs.
|
7,623
|
|
|
|
15.6
|
%
|
|
Rs.
|
10,925
|
|
|
|
22.8
|
%
|
|
|
(30
|
%)
|
Revenues
Our overall consolidated
revenues were Rs.48,967 million for the three months ended September 30, 2020, an increase of 2% as compared to Rs.48,009 million
for the three months ended September 30, 2019.
The following table
sets forth, for the periods indicated, our consolidated revenues by segment:
|
|
For the three months ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
Rs. in
millions
|
|
|
Revenues %
of Total
|
|
|
Rs. in
millions
|
|
|
Revenues %
of Total
|
|
|
Increase/
(Decrease)
|
|
Global Generics
|
|
Rs.
|
39,841
|
|
|
|
81
|
%
|
|
Rs.
|
32,816
|
|
|
|
68
|
%
|
|
|
21
|
%
|
PSAI
|
|
|
8,505
|
|
|
|
17
|
%
|
|
|
7,107
|
|
|
|
15
|
%
|
|
|
20
|
%
|
Proprietary Products
|
|
|
100
|
|
|
|
0.2
|
%
|
|
|
7,425
|
|
|
|
15
|
%
|
|
|
(99
|
%)
|
Others
|
|
|
521
|
|
|
|
1
|
%
|
|
|
661
|
|
|
|
1
|
%
|
|
|
(21
|
%)
|
Total
|
|
Rs.
|
48,967
|
|
|
|
100
|
%
|
|
Rs.
|
48,009
|
|
|
|
100
|
%
|
|
|
2
|
%
|
Segment Analysis
Global Generics
Revenues from our
Global Generics segment were Rs.39,841 million for the three months ended September 30, 2020, an increase of 21% as compared to
Rs.32,816 million for the three months ended September 30, 2019.
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:
|
·
|
an increase of approximately 17% resulting
from the introduction of new products during the period;
|
|
·
|
an increase of approximately 6% resulting
from an increase in the sales volumes of existing products in this segment; and
|
|
·
|
the foregoing was partially offset by
a decrease of approximately 2% 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.18,328 million for the three months ended September 30, 2020, an increase of 28% as compared to Rs.14,265 million for the three
months ended September 30, 2019. In U.S. dollar absolute currency terms (i.e., U.S. dollars without taking into account the effect
of currency exchange rates), such revenues increased by 22% in the three months ended September 30, 2020 as compared to the three
months ended September 30, 2019.
This increase in revenues
was largely attributable to the following:
|
·
|
an increase of approximately 20% on account
of increase sales volumes of existing products in this segment;
|
|
·
|
an increase of approximately 17% on account
of the introduction of new products during the period; and
|
|
·
|
an approximately 9% decrease resulting
from the net impact of changes in sales prices of the products in this segment.
|
During the three months
ended September 30, 2020, we launched nine new products in North America (the United States and Canada). These new products were
ciprofloxacin dexamethasone, dexmedetomidine, fulvestrant injection, dimethyl fumarate, penicillamine capsules, methylphenidate
ER, OTC diclofenac, OTC olopatadine and OTC nicotine lozenges.
During the three months
ended September 30, 2020, we made two new ANDA filing to the U.S.FDA. As of September 30, 2020, we had 94 filings pending approval
with the U.S. FDA, which includes two NDA filings under section 505(b) (2) and 92 ANDA filings. Out of these 92 ANDA filings, 50
are Paragraph IV filings and we believe we are the first to file with respect to 26 of these filings.
Europe: Our
Global Generics segment’s revenues from Europe are derived from Germany, the United Kingdom, Italy, France, Spain, Austria
and our out-licensing business across Europe. Such revenues were Rs.3,754 million for the three months ended September 30, 2020,
an increase of 36% as compared to Rs.2,764 million for the three months ended September 30, 2019. After taking into account the
impact of exchange rate fluctuations of the Indian rupee against the European Euro and Great Britain’s Pound sterling, this
increase was on account of new products launched between October 1, 2019 and September 30, 2020, as well as increase in the sales
volumes and sales price of certain of our existing products.
India: Our
Global Generics segment’s revenues from India for the three months ended September 30, 2020 were Rs.9,123 million, an increase
of 21% as compared to the three months ended September 30, 2019. This increase was attributable to sales from the acquired brands
from Wockhardt in June 2020, an increase in price of our existing products and new products we launched between October 1, 2019
and September 30, 2020. During the three months ended September 30, 2020, we launched seven brands in India including
Avigan and Redyx for treatment of the COVID-19 viral disease.
According to IQVIA
in its Moving Quarterly Total report for the three months ended September 30, 2020, our secondary sales in India increased by 1.9%
during such period, as compared to the India pharmaceutical market’s growth of 4.0% during such period.
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, China,
South Africa and Brazil) for the three months ended September 30, 2020 were Rs.8,636 million, an increase of 4% as compared to
Rs.8,276 million for the three months ended September 30, 2019.
Russia: Our
Global Generics segment’s revenues from Russia for the three months ended September 30, 2020 were Rs.3,978 million, a decrease
of 3% as compared to Rs.4,105 million for the three months ended September 30, 2019. In Russian rouble absolute currency terms
(i.e., Russian roubles without taking into account the effect of currency exchange rates), such revenues increased by 4% for the
three months ended September 30, 2020 as compared to the three months ended September 30, 2019. The increase in revenues
in constant currency was on account of an increase in sales price of our existing products and new products launched between October
1, 2019 and September 30, 2020. Our over-the-counter (“OTC”) division’s revenues from Russia for the
three months ended September 30, 2020 were 43% of our total revenues from Russia.
According to IQVIA,
as per its report for the two months ended August 31, 2020, our sales value growth and volume growth from Russia, as compared to
the Russian pharmaceutical market was as follows:
|
|
For the two months ended August 31, 2020
|
|
|
|
Dr. Reddy's Laboratories
Ltd.
|
|
|
Russian
pharmaceutical
market
|
|
|
|
Sales value
|
|
|
Volume
|
|
|
Sales value
|
|
|
Volume
|
|
Prescription (Rx)
|
|
|
(6.8
|
%)
|
|
|
(8.2
|
%)
|
|
|
1.4
|
%
|
|
|
(3.8
|
%)
|
Over-the-counter (OTC)
|
|
|
(0.3
|
%)
|
|
|
(4.1
|
%)
|
|
|
3.9
|
%
|
|
|
(6.1
|
%)
|
Total (Rx + OTC)
|
|
|
(4.1
|
%)
|
|
|
(6.9
|
%)
|
|
|
2.6
|
%
|
|
|
(5.3
|
%)
|
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.1,990 million for the three months ended September 30, 2020, an increase of 19% as compared to Rs.1,673
million for the three months ended September 30, 2019. This increase was attributable to the increase in sales volumes and sales
price of our existing major brands coupled with new products launched between October 1, 2019 and September 30, 2020.
“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.2,668 million for the three
months ended September 30, 2020, an increase of 7% as compared to Rs.2,498 million for the three months ended September 30, 2019.
This increase was largely attributable to sales from new products launched between October 1, 2019 and September 30,
2020, with the foregoing partially offset by price erosion in certain of our existing products and declines in the sales volumes
of our existing products.
Pharmaceutical Services and Active
Ingredients (“PSAI”)
Our PSAI segment’s
revenues for the three months ended September 30, 2020 were Rs.8,505 million, an increase of 20% as compared to Rs.7,107 million
for the three months ended September 30, 2019. 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 increase was largely attributable to an increase in
the sales volumes and sales prices of existing products.
Proprietary Products
Revenues from our
Proprietary Products segment were Rs.100 million for the three months ended September 30, 2020, a decline of 99% as compared to
Rs.7,425 million for the three months ended September 30, 2019. This decrease was primarily on account of our recognition of Rs.7,229
million as income in the three months period ended September 30, 2019 from a licence fee associated with the sale of our U.S. and
select territory rights for ZEMBRACE® SYMTOUCH® (sumatriptan injection) 3 mg and TOSYMRATM
(sumatriptan nasal spray) 10 mg, to Upsher-Smith Laboratories, LLC.
Gross Profit
Our gross profit was
Rs.26,409 million for the three months ended September 30, 2020, representing 53.9% of our revenues for that period, as compared
to Rs.27,620 million for the three months ended September 30, 2019, representing 57.5% 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,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Rs. in millions)
|
|
|
|
Gross Profit
|
|
|
% of Segment
Revenue
|
|
|
Gross Profit
|
|
|
% of Segment
Revenue
|
|
Global Generics
|
|
Rs.
|
23,685
|
|
|
|
59.4
|
%
|
|
Rs.
|
18,200
|
|
|
|
55.5
|
%
|
PSAI
|
|
|
2,284
|
|
|
|
26.8
|
%
|
|
|
1,750
|
|
|
|
24.6
|
%
|
Proprietary Products
|
|
|
88
|
|
|
|
88.0
|
%
|
|
|
7,298
|
|
|
|
98.3
|
%
|
Others
|
|
|
352
|
|
|
|
67.6
|
%
|
|
|
372
|
|
|
|
56.3
|
%
|
Total
|
|
Rs.
|
26,409
|
|
|
|
53.9
|
%
|
|
Rs.
|
27,620
|
|
|
|
57.5
|
%
|
The gross profits
from our Global Generics segment increased to 59.4% for the three months ended September 30, 2020 from 55.5% for the three months
ended September 30, 2019. This increase is on account of the following:
|
·
|
the net benefit from exchange rate fluctuations
of multiple currencies in the market in which we operate against the Indian Rupee;
|
|
·
|
new product launches with higher gross
margins;
|
|
·
|
increases in the proportion of sales of
certain products with higher margins;
|
|
·
|
lower Inventory write-off charges; and
|
|
·
|
manufacturing leverage benefits from higher
sales at same levels of overheads.
|
This increase was partially
offset by a reduction on account of price erosion in certain of our products primarily in the United States, United Kingdom, Brazil
and Columbia.
The gross profits
from our PSAI segment increased to 26.8% for the three months ended September 30, 2020, from 24.6% for the three months ended September
30, 2019. This increase was primarily on account of net benefit from exchange rate fluctuation of multiple currencies against Indian
Rupee and product mix.
Selling, general and administrative
expenses
Our selling, general
and administrative expenses were Rs.13,107 million for the three months ended September 30, 2020, a decrease of 1% as compared
to Rs.13,217 million for the three months ended September 30, 2019. 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 increase was largely attributable to the
following:
|
·
|
a reduction of 6% on account of decreased
other costs;
|
|
·
|
a reduction of 1% on account of decreased
selling & advertisement expenses; and
|
|
·
|
a reduction of 1% on account of decreased
travel and vehicle expenditures.
|
the foregoing was partially offset
by the following:
|
·
|
an increase of 5% on account of increased
personnel costs for annual increments and the costs of the employees that we hired in connection with our acquisition of select
brands and a plant facility at Baddi from Wockhardt;
|
|
·
|
an increase of 1% on account of higher
logistics costs for the supply of goods; and
|
|
·
|
an increase of 1% on account of higher
depreciation and amortization charges.
|
As a proportion of
our total revenues, our selling, general and administrative expenses decreased to 26.8% for the three months ended September 30,
2020 from 27.5% for the three months ended September 30, 2019.
Impairment of non-current assets
Our impairment of
non-current assets expense charge were Rs.781 million for the three months ended September 30, 2020 as compared to a charge of
Rs.3,560 million for the three months September 30, 2019. (Refer Note 10 of interim financial statements for further details).
Research and development expenses
Our research and development
expenses were Rs.4,359 million for the three months ended September 30, 2020, an increase of 19% as compared to Rs.3,662 million
for the three months ended September 30, 2019. This increase was primarily on account of higher developmental expenditures on certain
projects in our Global Generics segment, biosimilars business and our Proprietary products segment.
As a proportion of
our total revenues, our research and development expenses was at 8.9% for the three months ended September 30, 2020, as compared
to 7.6% for the three months ended September 30, 2019.
Other income, net
Our net other income
was Rs.149 million for the three months ended September 30, 2020, as compared to net other income of Rs.135 million for the three
months ended September 30, 2019.
Finance income, net
Our net finance income
was Rs.237 million for the three months ended September 30, 2020, as compared to Rs.231 million for the three months ended September
30, 2019. This decrease in net finance income was due to the following:
|
·
|
profit on sale of investments, and unrealized
gains on investments recorded at fair value through profit and loss, of Rs.131 million for the three months ended September 30,
2020, as compared to profit on sale of investments of Rs.253 million for the three months ended September 30, 2019;
|
|
·
|
net interest expense of Rs.130 million
for the three months ended September 30, 2020, as compared to net interest expense of Rs.26 million for the three months ended
September 30, 2019; and
|
|
·
|
net foreign exchange gain of Rs.236 million
for the three months ended September 30, 2020, as compared to net foreign exchange gain of Rs.4 million for the three months ended
September 30, 2019.
|
Profit before tax
As a result of the
above, our profit before tax was Rs.8,621 million for the three months ended September 30, 2020, as compared to Rs.7,664 million
for the three months ended September 30, 2019.
Tax expense
Our consolidated weighted
average tax rate was an expense of 11.6% for the three months ended September 30, 2020, as compared to a tax benefit of 42.5% for
the three months ended September 30, 2019.
The effective rates
of tax for the three ended September 30, 2020 was lower than the enacted tax rate primarily on account of recognition of deferred
tax asset amounting to Rs.1,012 million pursuant to a planned restructuring activity between the Group Companies.
The effective rate
of tax for the three months ended September 30, 2019 was lower than the enacted tax rate primarily on account of recognition of
deferred tax asset for the minimum alternate tax (MAT) credit, resulting from the reduction in the MAT rate under Indian tax laws
from 21.55% to 17.47%.
Our tax expense was
Rs.998 million for the three months ended September 30, 2020 as compared to a net tax benefit of Rs.3,261 million for the three
months ended September 30, 2019.
Profit for the period
As a result of the
above, our net profit was Rs.7,623 million for the three months ended September 30, 2020, representing 15.6% of our total revenues
for such period, as compared to Rs.10,925 million for the three months ended September 30, 2019, representing 22.8% of our total
revenues for such period.
Section B:
Six months ended
September 30, 2020 compared to the six months ended September 30, 2019
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,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
Rs. in
millions
|
|
|
% of
Revenues
|
|
|
Rs. in
millions
|
|
|
% of
Revenues
|
|
|
Increase/
(Decrease)
|
|
Revenues
|
|
Rs.
|
93,142
|
|
|
|
100.0
|
%
|
|
Rs.
|
86,444
|
|
|
|
100.0
|
%
|
|
|
8
|
%
|
Gross profit
|
|
|
51,164
|
|
|
|
54.9
|
%
|
|
|
47,479
|
|
|
|
54.9
|
%
|
|
|
8
|
%
|
Selling, general and administrative expenses
|
|
|
25,893
|
|
|
|
27.8
|
%
|
|
|
25,282
|
|
|
|
29.2
|
%
|
|
|
2
|
%
|
Research and development expenses
|
|
|
8,339
|
|
|
|
9.0
|
%
|
|
|
7,271
|
|
|
|
8.4
|
%
|
|
|
15
|
%
|
Impairment of non-current assets
|
|
|
781
|
|
|
|
0.8
|
%
|
|
|
3,560
|
|
|
|
4.1
|
%
|
|
|
(78
|
%)
|
Other income, net
|
|
|
(267
|
)
|
|
|
(0.3
|
%)
|
|
|
(3,894
|
)
|
|
|
(4.5
|
)%
|
|
|
(93
|
%)
|
Results from operating activities
|
|
|
16,418
|
|
|
|
17.6
|
%
|
|
|
15,260
|
|
|
|
17.7
|
%
|
|
|
8
|
%
|
Finance income, net
|
|
|
842
|
|
|
|
0.9
|
%
|
|
|
624
|
|
|
|
0.7
|
%
|
|
|
35
|
%
|
Share of profit of equity accounted investees, net of tax
|
|
|
150
|
|
|
|
0.2
|
%
|
|
|
280
|
|
|
|
0.3
|
%
|
|
|
(46
|
%)
|
Profit before tax
|
|
|
17,410
|
|
|
|
18.7
|
%
|
|
|
16,164
|
|
|
|
18.7
|
%
|
|
|
8
|
%
|
Tax expense / (benefit), net
|
|
|
3,994
|
|
|
|
4.3
|
%
|
|
|
(1,389
|
)
|
|
|
(1.6
|
%)
|
|
|
(387
|
%)
|
Profit for the period
|
|
Rs.
|
13,416
|
|
|
|
14.4
|
%
|
|
Rs.
|
17,553
|
|
|
|
20.3
|
%
|
|
|
(24
|
%)
|
Revenues
Our overall consolidated
revenues were Rs.93,142 million for the six months ended September 30, 2020, an increase of 8% as compared to Rs.86,444 million
for the six months ended September 30, 2019.
The following table
sets forth, for the periods indicated, our consolidated revenues by segment:
|
|
For the six months ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
Rs. in
millions
|
|
|
Revenues
% of Total
|
|
|
Rs. in
millions
|
|
|
Revenues
% of Total
|
|
|
Increase/
(Decrease)
|
|
Global Generics
|
|
Rs.
|
74,916
|
|
|
|
80
|
%
|
|
Rs.
|
65,798
|
|
|
|
76
|
%
|
|
|
14
|
%
|
PSAI
|
|
|
17,058
|
|
|
|
18
|
%
|
|
|
11,646
|
|
|
|
13
|
%
|
|
|
46
|
%
|
Proprietary Products
|
|
|
156
|
|
|
|
0.2
|
%
|
|
|
7,706
|
|
|
|
9
|
%
|
|
|
(98
|
%)
|
Others
|
|
|
1,012
|
|
|
|
1
|
%
|
|
|
1,294
|
|
|
|
2
|
%
|
|
|
(22
|
%)
|
Total
|
|
Rs.
|
93,142
|
|
|
|
100
|
%
|
|
Rs.
|
86,444
|
|
|
|
100
|
%
|
|
|
8
|
%
|
Segment Analysis
Global Generics
Revenues from our
Global Generics segment were Rs.74,916 million for the six months ended September 30, 2020, an increase of 14% as compared to Rs.65,798
million for the six months ended September 30, 2019.
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:
|
·
|
an increase of approximately 13% resulting
from the introduction of new products during the intervening period;
|
|
·
|
an increase of approximately 3% resulting
from a net increase in the sales volume of existing products in this segment; and
|
|
·
|
a decrease of approximately 2% 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) for
the six months ended September 30, 2020 were Rs.35,609 million, an increase of 16% as compared to Rs.30,587 million the six months
ended September 30, 2019. In U.S. dollar absolute currency terms (i.e., U.S. dollars without taking into account the effect of
currency exchange rates), such revenues increased by 9% in the six months ended September 30, 2020 as compared to the six months
ended September 30, 2019.
During the six months
ended September 30, 2020, we launched 15 new products in North America (the United States and Canada). These new products are abiraterone
acetate tablets, amphetamine sulphate tablets, colchicine tablets, desmopressin acetate injection, fenofibrate tablets, NitroDur®
(nitroglycerin) transdermal infusion, ciprofloxacin dexamethasone, dexmedetomidine, fulvestrant injection, dimethyl fumarate, penicillamine
capsules, methylphenidate ER, OTC diclofenac, OTC olopatadine and OTC nicotine lozenges.
Europe: Our
Global Generics segment’s revenues from Europe were Rs.7,304 million for the six months ended September 30, 2020, an
increase of 41% as compared to Rs.5,168 million for the six months ended September 30, 2019. After taking into account the impact
of exchange rate fluctuations of the Indian rupee against the European Euro and Great Britain’s Pound sterling, this increase
was largely attributable to the new products launched as well as increases in the sales volumes sale prices of our existing products.
India: Our
Global Generics segment’s revenues from India were Rs.15,383 million for the six months ended September 30, 2020,
an increase of 6% as compared to Rs.14,471 million for the six months ended September 30, 2019. During the six months ended September
30, 2020, we launched 11 new brands in India.
According to IQVIA
in its Moving Annual Total report for the twelve months ended September 30, 2020, our secondary sales in India decreased by 0.9%
during such period, as compared to the India pharmaceutical market’s growth of 4.6% during such period.
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 which we refer to as our “Rest of the World” markets,
primarily China, South Africa and Brazil) for the six months ended September 30, 2020 were Rs.16,620 million, an increase of 7%
as compared to Rs.15,572 million for the six months ended September 30, 2019.
Russia: Our
Global Generics segment’s revenues from Russia were Rs.7,250 million for the six months ended September 30, 2020, a
decrease of 10% as compared to Rs.8,068 million for the six months ended September 30, 2019. In Russian rouble absolute currency
terms (i.e., Russian roubles without taking into account the effect of currency exchange rates), such revenues decreased by 5%
for the six months ended September 30, 2020 as compared to the six months ended September 30, 2019. Our OTC division’s
revenues from Russia for the six months ended September 30, 2020 were 43% of our total revenues from Russia.
According to IQVIA,
as per its report for the six months ended September 30, 2020, our sales value growth (in Russian roubles) and volume growth from
Russia, as compared to the Russian pharmaceutical market, was as follows:
|
|
For the five months ended August 31, 2020
|
|
|
|
Dr. Reddy's Laboratories
Ltd.
|
|
|
Russian pharmaceutical
market
|
|
|
|
Sales value
|
|
|
Volume
|
|
|
Sales value
|
|
|
Volume
|
|
Prescription (Rx)
|
|
|
(4.4
|
%)
|
|
|
(10.3
|
)%
|
|
|
(3.9
|
%)
|
|
|
(7.7
|
%)
|
Over-the-counter (OTC)
|
|
|
(2.5
|
%)
|
|
|
(9.9
|
)%
|
|
|
1.7
|
%
|
|
|
(7.1
|
)%
|
Total (Rx + OTC)
|
|
|
(3.6
|
%)
|
|
|
(10.1
|
)%
|
|
|
(1.2
|
%)
|
|
|
(7.3
|
)%
|
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.3,377 million for the six months ended September 30, 2020, an increase of 17% as compared to Rs.2,879
million for the six months ended September 30, 2019.
“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.5,993 million for the six
months ended September 30, 2020, an increase of 30% as compared to Rs.4,625 million for the six months ended September 30, 2019.
This increase was attributable to an increase in sales contribution from markets such as China, Vietnam and Myanmar.
Pharmaceutical Services and Active
Ingredients (“PSAI”)
Our PSAI segment’s
revenues for the six months ended September 30, 2020 were Rs.17,058 million, an increase of 46% as compared to Rs.11,646 million
for the six months ended September 30, 2019. 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 increase was largely attributable to an increase in the sales
volume of our existing products and increase in the sales price of existing products
Proprietary Products
Revenues from our
Proprietary Products segment were Rs.156 million for the six months ended September 30, 2020, a decrease of 98% as compared to
Rs.7,706 million for the six months ended September 30, 2019. This decrease was primarily on account of recognition of Rs.7,229
million as income in the six months period ended September 30, 2019 towards license fee associated with the sale of our U.S. and
select territory rights for ZEMBRACE® SYMTOUCH® (sumatriptan injection) 3 mg and TOSYMRATM
(sumatriptan nasal spray) 10 mg to Upsher-Smith Laboratories, LLC
Gross Profit
Our total gross profit
was Rs.51,164 million for the six months ended September 30, 2020, representing 54.9% of our revenues for that period, as compared
to Rs.47,479 million for the six months ended September 30, 2019, representing 54.9% of our revenues for that period.
|
|
For the six months ended September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Rs. in millions)
|
|
|
|
Gross Profit
|
|
|
% of Segment
Revenue
|
|
|
Gross Profit
|
|
|
% of Segment
Revenue
|
|
Global Generics
|
|
Rs.
|
45,211
|
|
|
|
60.3
|
%
|
|
Rs.
|
37,207
|
|
|
|
56.5
|
%
|
PSAI
|
|
|
5,140
|
|
|
|
30.1
|
%
|
|
|
2,075
|
|
|
|
17.8
|
%
|
Proprietary Products
|
|
|
144
|
|
|
|
92.3
|
%
|
|
|
7,505
|
|
|
|
97.4
|
%
|
Others
|
|
|
669
|
|
|
|
66.1
|
%
|
|
|
692
|
|
|
|
53.5
|
%
|
Total
|
|
Rs.
|
51,164
|
|
|
|
54.9
|
%
|
|
Rs.
|
47,479
|
|
|
|
54.9
|
%
|
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 increased to 60.3% for the six months ended September 30, 2020, from
56.5% for the six months ended September 30, 2019. This increase is on account of the following factors:
|
·
|
the net benefit from exchange rate fluctuation
of multiple currencies in the markets in which we operate against the Indian Rupee;
|
|
·
|
new product launches with higher gross
margins;
|
|
·
|
lower Inventory write-off charges; and
|
|
·
|
manufacturing leverage benefits of higher
sales at sales levels of overheads.
|
This increase was partially
offset by a reduction on account of price erosion in certain of our products primarily in the United States and Europe.
The gross profits
from our PSAI segment increased to 30.1% for the six months ended September 30, 2020, from 17.8% for the six months ended September
30, 2019. This increase was primarily on account of net benefit from exchange rate fluctuation of multiple currencies against Indian
Rupee, manufacturing leverage benefits of higher sales and product mix.
Selling, general and administrative
expenses
Our selling, general
and administrative expenses were Rs.25,893 million for the six months ended September 30, 2020, an increase of 2% as compared to
Rs.25,282 million for the six months ended September 30, 2019.
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 increase was largely attributable to the following:
|
·
|
an increase of 4% on account of higher
logistics costs for the supply of goods;
|
|
·
|
an increase of 3% on account of increased
personnel cost for annual increments and the costs of the employees that we hired in connection with our acquisition of select
brands and a plant facility at Baddi from Wockhardt; and
|
|
·
|
an increase of 1% on account of higher
depreciation and amortization charge.
|
the foregoing was partially offset
by
|
·
|
a decrease of 4% on account of reduced
selling and advertisement expenses; and
|
|
·
|
a reduction of 2% on account of reduced
travel and other costs.
|
As a proportion of
our total revenues, our selling, general and administrative expenses were 27.8% for the six months ended September 30, 2020, as
compared to 29.2% for the six months ended September 30, 2019.
Impairment of non-current assets
Our impairment of
non-current assets expense charge were Rs.781 million for the six months ended September 30, 2020 as compared to a charge of Rs.3,560
million for the six months September 30, 2019. (Refer Note 10 of interim financial statements for further details).
Research and development expenses
Our research and development
costs were Rs.8,339 million for the six months ended September 30, 2020, an increase of 15% as compared to Rs.7,271 million for
the six months ended September 30, 2019. This increase was primarily on account of higher developmental expenditure on certain
projects in our Global Generics segment, biosimilars business and Proprietary products segment,
Other income, net
Our other income was
Rs.267 million for the six months ended September 30, 2020, as compared to other income of Rs.3,894 million for the six months
ended September 30, 2019.
The other income was
higher for the six months ended September 30, 2019 mainly on account of Rs.3,457 million received from Celgene pursuant to a settlement
agreement entered towards settlement of any claim the Company or its affiliates may have had for damages under section 8 of the
Canadian Patented Medicines (Notice of Compliance) Regulations in regard to the Company’s ANDS for a generic version of REVLIMID
brand capsules, (Lenalidomide) pending before Health Canada.
Additionally, our
other income for the six months ended September 30, 2019 includes a gain of Rs.464 million on account of sale our of rights relating
to an intangible asset forming part of our Proprietary Products Segment and our sale of the membership interests of Dr. Reddy’s
Laboratories Tennessee, LLC.
Finance income, net
Our net finance income
was Rs.842 million for the six months ended September 30, 2020, as compared to net finance income of Rs.624 million for the six
months ended September 30, 2019. This increase in net finance income was attributable to:
|
·
|
profit on sale of investments, and unrealized
gains on investments recorded at fair value through profit and loss, of Rs.389 million for the six months ended September 30, 2020,
as compared to profit on sale of investments of Rs.562 million for the six months ended September 30, 2019;
|
|
·
|
net interest expense of Rs.82 million
for the six months ended September 30, 2020, as compared to net interest expense of Rs.101 million for the six months ended September
30, 2019;
|
|
·
|
net foreign exchange gain of Rs.535 million
for the six months ended September 30, 2020, as compared to net foreign exchange gain of Rs.158 million for the six months ended
September 30, 2019; and
|
|
·
|
the other miscellaneous income of Rs.0
for the six months ended September 30, 2020, as compared to Rs 5 million for the six months ended September 30, 2019.
|
Profit before tax
As a result of the
above, our profit before tax was Rs.17,410 million for the six months ended September 30, 2020, an increase of 8% as compared to
Rs.16,164 million for the six months ended September 30, 2019.
Tax expense
Our consolidated weighted
average tax rate was an expense of 22.9% for the six months ended September 30, 2020, as compared to a benefit of 8.6% for the
six months ended September 30, 2019. Our tax expense was Rs.3,994 million for the six months ended September 30, 2020 as compared
to a net tax benefit of Rs.1,389 million for the six months ended September 30, 2019.
The effective rates
of tax for the six months ended September 30, 2020 was lower than the enacted tax rate primarily on account of recognition of deferred
tax asset amounting to Rs.1,012 million pursuant to a planned restructuring activity between the Group Companies.
The effective rates
of tax for the six months ended September 30, 2019 was lower than the enacted tax rate primarily on account of recognition of a
deferred tax asset related to the Minimum Alternate Tax (“MAT”) credits in Dr. Reddy’s Laboratories Limited,
the parent company in India, resulting from the reduction in the MAT rate under Indian tax laws from 21.55% to 17.47%.
Profit for the period
As a result of the
above, our net profit was Rs.13,416 million for the six months ended September 30, 2020, representing 14.4% of our total revenues
for such period, as compared to Rs.17,553 million for the six months ended September 30, 2019, representing 20.3% 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 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.
Principal Debt Obligations
The following table
provides a list of our principal debt obligations (excluding lease obligations) outstanding as of September 30, 2020:
|
|
Amount
(Rs. in millions)
|
|
|
Currency(1)
|
|
Interest Rate(2)
|
Pre-shipment credit
|
|
Rs.
|
15,751
|
|
|
U.S.$
|
|
1 Month/6 Month LIBOR + 12.5 to 15 bps
|
|
|
|
|
|
|
INR
|
|
1 Month T-bill + 35 bps
|
|
|
|
|
|
|
INR
|
|
1 Month T-bill + 60 bps with a collar of 4.20%
|
|
|
|
|
|
|
INR
|
|
5.75%
|
Other working capital borrowings
|
|
|
4,101
|
|
|
ZAR
|
|
1 Month JIBAR+120 bps
|
|
|
|
|
|
|
RUB
|
|
7.15%
|
|
|
|
|
|
|
BRL
|
|
7.25%
|
|
|
|
|
|
|
MXN
|
|
TIIE + 1.20%
|
|
|
|
|
|
|
INR
|
|
6.20%
|
|
|
|
|
|
|
U.S.$
|
|
1 Month LIBOR + 75 bps
|
Long-term Non-convertible debentures
|
|
|
3,800
|
|
|
INR
|
|
6.77%
|
|
(1)
|
“INR” means Indian rupees, “U.S.$” means United States Dollars, “RUB”
means Russian roubles, “MXN” means Mexican pesos, “BRL” means Brazilian reals and “ZAR” means
South African rand.
|
|
(2)
|
“LIBOR” means the London Inter-bank Offered Rate, “TIIE” means the Equilibrium
Inter-banking Interest Rate (Tasa de Interés Interbancaria de Equilibrio), “JIBAR” means the Johannesburg Interbank
Average Rate and “T-bill” means the India Treasury Bill interest rate.
|
Summary of statements of cash flows
The following table summarizes our statements
of cash flows for the periods presented:
|
|
For the six months ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
(Rs. in millions)
|
|
Net cash from/(used in):
|
|
|
|
|
|
|
|
|
Operating activities
|
|
Rs.
|
20,167
|
|
|
Rs.
|
19,939
|
|
Investing activities
|
|
|
(16,970
|
)
|
|
|
(4,892
|
)
|
Financing activities
|
|
|
(1,384
|
)
|
|
|
(14,293
|
)
|
Net increase in cash and cash equivalents
|
|
Rs.
|
1,813
|
|
|
Rs.
|
754
|
|
In addition to cash,
inventory and accounts receivable, our unused sources of liquidity included Rs.41,581 million available in credit under revolving
credit facilities with banks as of September 30, 2020.
Cash Flows from Operating Activities
The result of operating
activities was a net cash inflow of Rs.20,167 million for the six months ended September 30, 2020, as compared to a cash inflow
of Rs.19,939 million for the six months ended September 30, 2019.
The increase in net
cash inflow of Rs.228 million was primarily due to an increase in our earnings offset by increase in our working capital requirements.
Our average days’
sales outstanding (“DSO”) as at September 30, 2020, June 30, 2020 and March 31, 2020 were 91 days, 94 days and
100 days, respectively. The decrease in our DSO as on compared to June 30, 2020 was primarily due to improved collections from
customers.
Cash Flows used in Investing Activities
Our investing activities
resulted in net cash outflows of Rs.16,970 million and Rs.4,892 million for the six months ended September 30, 2020 and 2019, respectively
which was primarily on account of the following:
|
·
|
the payment to Wockhardt Limited, in connection
with our acquisition of certain of its business assets, of Rs.15,514 million for the six months ended September 30, 2020 (refer
to Note 24 of our interim financial statements for further details);
|
|
·
|
the acquisition of property, plant and
equipment, and other intangible assets ,net of discards, of Rs.4,533 million for the six months ended September 30, 2020, as compared
to Rs.2,326 million for the six months ended September 30, 2019; and
|
|
·
|
the net proceeds of other investments
of Rs.2,363 million for the six months ended September 30, 2020, as compared to net purchase of other investments of Rs.3.419 million
for the six months ended September 30, 2019.
|
Cash
Flows used in Financing Activities
Our financing activities
resulted in a net cash outflow of Rs.1,384 million and of Rs.14,293 million for the six months ended September 30, 2020 and
2019, respectively.
During the six months
ended September 30, 2020, our net cash outflow was primarily on account of the following:
|
·
|
payments of dividends of Rs.4,147 million;
|
|
·
|
interest payments of Rs.559 million;
|
|
·
|
payments of the principal portion of lease
liabilities of Rs.366 million;
|
|
·
|
purchases of treasury shares of Rs.190
million; and
|
|
·
|
the foregoing was partially offset by
net proceeds from short-term and long-term borrowings of Rs.3,701 million.
|
During the six months
ended September 30, 2019, our net cash outflow was primarily on account of the following:
|
·
|
payments of dividends of Rs.3,916 million;
|
|
·
|
interest payments of Rs.839 million;
|
|
·
|
payments of the principal portion of lease
liabilities of Rs.287 million;
|
|
·
|
purchases of treasury shares of Rs.474
million; and
|
|
·
|
the net repayment of short-term and long-term
borrowings of Rs.8,777 million.
|
ITEM 4. OTHER MATTERS
None
ITEM 5. EXHIBITS