Dr Reddys Laboratories Ltd Management Discussions.


Driven by the core philosophy of ‘Good Health Cant Wait, we are committed to providing affordable and innovative medicines for healthier lives, creating healthy ecosystems and strong communities.

(1) FY2020 represents fiscal year 2019-20, from 1 April 2019 to 31 March 2020, and analogously for FY2019 and previously such labelled years.

(2) Unless otherwise stated, financial data given in this Management Discussion and Analysis is based on the companys consolidated results prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.


Global Generics (GG), which includes branded and unbranded prescription medicine as well as over-the-counter (OTC) pharmaceutical products. It also includes the biosimilars business.

Through our portfolio of products and services, we operate in multiple therapeutic areas. Of these, the major ones are (i) gastrointestinal, (ii) oncology, (iii) cardiovascular, (iv) pain management, (v) central nervous system (CNS), (vi) respiratory, and (vii) anti-infective.

We are present in several countries across the globe, with the key geographies being the US, Europe, India, Russia, Commonwealth of independent states (CIS) countries, China and other markets.

Continuing the momentum from the last year, FY2020 witnessed robust operational and financial performance for the company, despite pricing pressure challenges that continued Pharmaceutical Services and Active Ingredients (PSAI), comprising Active Pharmaceutical Ingredients (APIs) and Custom Pharmaceutical Services (CPS).

In the US, in Europe, and across certain Emerging Markets. Even so, the company was able to grow across all its businesses, with a significant turnaround in Europe and healthy growth in the branded markets of India, Russia and several other emerging economies. Our North America generics and PSAI businesses also grew, albeit at a lower rate.

Our focus on cost controls, productivity improvements and on creating a leaner and more de-layered business model continued unabated from the previous year.

This focus helped improve our profits. Moreover, the financial performance benefited due to depreciation of rupee against the US dollar.

Proprietary Products (PP), which is mainly composed of the differentiated formulations business, focusing on certain key medical needs.


Bringing expensive medicines within reach

Working with our partners to help them succeed

Addressing unmet patient needs

Enabling and helping our partners ensure that our medicines are available where needed

• Helping patients manage disease better

We leveraged growth momentum across our key branded markets of India, Russia, CIS countries and some other regions.

Improvements in revenue and EBITDA in FY2020 were mainly on account of the following factors.

1. Turnaround in the Europe generics business: FY2020 saw a significant growth in the existing geographies as well as in the new markets in Europe. This was driven by an expansion of the base business and new product launches — coupled by the fact that a few key molecules entered the official tenders. Moreover, the temporary supply disruptions that we witnessed last year were resolved in the course of FY2020.

2. Continued growth in the branded generics markets: We leveraged growth momentum across our key branded markets of India, Russia, CIS countries and some other regions.

Such growth was due to improved base business in these markets and launch of new products.

3. Moving ahead on our journey of cost control: We continued making good progress on the journey that began last year to trim cost structures through enhanced productivity and elimination of waste across our businesses.

The initiatives that were put in place to drive cost efficiencies and productivity improvement across manufacturing, procurement, R&D expenditures and marketing spends, played a significant part in improving the financial performance of the company.

4. Streamlining our operations towards a leaner business model:

Continuing with our strategy of achieving self-sustainability across each of our businesses, streamlining and optimizing global cost structures to create profitable growth for the company, we sold the US and selected territory rights of our commercialized neurology products of the Proprietary Products (PP) business.

Profit was, however, impacted due to impairment charge taken on certain product intangibles, which will be discussed later.



• Revenue from GG in FY2020 was Rs.138.1 billion, which represented an increase of 12% compared to the previous year. This growth was largely attributable to impressive performances witnessed in Europe, Emerging Markets and India.

• Revenue from North America generics (NAG) was Rs.64.7 billion, with a growth of 8% versus FY2019. This growth was supported by the launch of 27 new products, including four re-launches during the year - the major ones being Daptomycin, Carboprost Tromethamine and Phytonadione (Vitamin K). It should, however, be noted that while there was a healthy growth in the sales volumes of our existing products, this was offset by significant pricing pressures on some of our key products, such as Buprenorphine and Naloxone sublingual films, Metoprolol and Decitabine Injection.

• In FY2020, we filed eight new Abbreviated New Drug Applications (ANDAs) with the USFDA. As on 31 March 2020, the company had 99 generic filings pending approval from the USFDA — comprising 97 ANDAs and two New Drug Applications (NDAs) filed under the Section 505(b)(2) route of the US Federal Food, Drug and Cosmetic Act. Of the 97 ANDAs, 54 are Para IV applications, and we believe 30 of these have ‘First to File status.

• Revenue from Europe was Rs.11.7 billion, representing a growth of 49% versus FY2019. This was primarily due to expansion of the base business, new product launches coupled with a few key molecules entering tenders, and resolution of the temporary supply disruptions that were witnessed last year. Growth was also aided by the scaling up of our businesses in the new markets of Italy, Spain and France. Revenue from Emerging Markets was Rs.32.8 billion, with a growth of 14% compared to FY2019. This was largely on account of improvement in our base business performance, new product launches and further scaling up of business in some of our new markets.

- Revenue from Russia was Rs.16.9 billion, representing a year-on-year growth of 10%.

- Revenue from other CIS countries and Romania was Rs.6.5 billion, or an annual growth of 23%.

- Revenue from Rest of the world (RoW) territories was Rs.9.4 billion, or a year-on-year growth of 13%.

- Revenue from India was Rs.28.9 billion, which represented a growth of 11% compared to FY2019. This was attributable to an increase in both sales volume and price of our existing products, along with additional revenues from the launch of new products.

During FY2020, we launched 21 new brands in India. We also entered the nutrition segment with the launch of our diabetes nutrition drink ‘Celevida.


• Revenues from PSAI stood at Rs.25.7 billion, or a growth of 7% versus FY2019. During the year, we filed 98 drug master files (DMFs) worldwide, including 10 filings in the US.


• Revenue from PP was Rs.7.9 billion.

This translated to a growth of 67%. During the year, we sold our US and select territorial rights for ZEMBRACE SYMTOUCH (sumatriptan injection)

3 mg and TOSYMRA™ (sumatriptan nasal spray) 10 mg, belonging to our neurology franchise.


The global pharmaceutical industry has seen an increased use of medicines over the past decade — where the rate of growth of medicine usage has outpaced both population and economic growth.

This expansion has been largely on account of the pharmerging markets.

However, the pace of expansion slowed down somewhat in the latter half of the decade, partly due to the decline and stagnation in economic growth in some of the countries, coupled with changes in spending dynamics of consumers.

As per the recent IQVIA report, global spending on medicines is expected to surpass US$1.1 trillion by 2024. This can be attributed to the increasing reach of medicines, aided by innovative and specialty offerings bringing newer brands to the market.

Equally, however, overall industry growth is expected to moderate to below 5% by 2024, owing primarily to the slower growth in developed markets, offsetting the 5%-8% growth expected in the pharmerging markets.

Specialty medicines currently contribute to 36% of global spending and this share is expected to go up to 40% by 2024. This growth is, and will be, coming from niche areas such as oncology and orphan drugs.

While consumer spend on specialty products in developed markets is expected to reach 52% of total pharmaceutical expenditure in 2024 from 44% currently, such spending in pharmerging markets is expected to be flat. This would be largely due to high out-of-pocket expenses and delays in marketing of specialty medicines relative to developed markets — often on account of slower adoption rate of such medicines in the pharmerging markets.

While continuing to remain positive, the rate of growth in pharmaceutical spends has seen a steady decrease over the past few years. This has been on account of tighter price controls and the increasing loss of exclusivity by brands, which are being offset by new medicines launched in the market.

New product growth is projected to contribute US$165 billion over the next five years, with around 270 new molecular entities expected to be approved, compared to 236 approved in the last five years. However, declining price, especially in the US, and continued, albeit slower, expansion of older products may offset the gains made from new products.

Over the past few years, there has been an increasing trend across pharmaceutical companies to outsource discovery, development and manufacturing of new products, thus saving capital costs and gaining access to capacity and specialty capabilities which are not routinely available in-house. In this context, contract development and manufacturing organizations (CDMOs) have been providing niche services such as product development and characterization, manufacturing of clinical and commercial APIs and drug products, along with a range of ancillary services including but not limited to clinical, logistical, distribution and regulatory support.

There seems to be a strong correlation between a companys size and its likelihood of outsourcing to one or more CDMO — as larger pharmaceutical enterprises are developing alternate sources for supplying APIs for their critical products to ensure minimum supply disruptions.

We foresee strong growth for CDMOs in the coming years on the back of continued growth in the pharmaceutical industry and companies striving to reduce their fixed costs through outsourcing their manufacturing activities. On their part, CDMOs are expected to make additional investments to boost their capacities and capabilities in anticipation of future business.

With a renewed global focus on (i) cost and process optimization for manufacturing and distribution functions; (ii) disruptive technologies revolutionizing almost every aspect of reaching patients; and (iii) Artificial intelligence (AI) and machine learning promising to provide efficient solutions for utilizing and deriving value out vast swathes of data, given below are some key trends that we expect to emerge.

Transforming manufacturing through continuous processing: With increasing focus on bringing economies of scale in manufacturing, more and more companies are investing in continuous processes and flow chemistry, as distinct from the erstwhile batch processing techniques. Most global pharmaceutical companies believe that long-term sustainability lies in continuous manufacturing operations. Innovation in new technologies is enabling manufacturers to reduce usage of raw material, automate process development studies and calibration, and help with micro-dosages and containment. The reduced volumes of raw materials that can be used in flow chemistry versus batch processing results in enhanced safety and better economies of scale with lower variable costs.

• Drug pricing reforms and consolidation of generic players in the US: With the presidential elections approaching in 2020, healthcare reforms remain a key policy agenda. As a part of this, several legislative proposals to lower prescription drug prices have been initiated. These include linking of drug prices in the US to international drug pricing, imposing penalties on manufacturers not participating in the drug pricing negotiations with the government, and proposals to establish a federal agency to oversee drug pricing in the US. These pricing pressures have also led to an increasing trend of consolidation among the US generic players.

• Increase in supply chain security through advances in serialization: Under the Drug Supply Chain Security Act (DSCSA), 2013, manufacturers and packagers must enable the tracing of prescription drugs through the entire pharmaceutical supply chain by placing a unique product identifier on certain prescription drug packages. The objective is to protect consumers from exposure to counterfeit, stolen, contaminated, or otherwise harmful drugs. With the timelines of the act drawing near, serialization will be a major focus area for pharmaceutical manufacturers and packagers.

• Increased scrutiny of drug manufacturing quality. A key development over the last two years is the increased scrutiny by the USFDA and the European Medicines Agency (EMA) on account of the detection of nitrosamine (NDMA) impurities in certain APIs. NDMA is a probable human carcinogen, and low levels of NDMA are commonly

Ingested through food and water — levels that are not expected to lead to an increase in the risk of cancer. However, sustained higher levels of exposure may increase the risk of cancer in humans. The impurity was detected mostly in the ‘Sartan family of drugs and also in Ranitidine. Later last year, the USFDA also began investigating the potential of NDMA impurities in the anti-diabetes drug Metformin. It is expected that such scrutiny will expand to other formulations as well and, in the process, redefine raw material sourcing, processing conditions and impurity testing parameters for APIs.

• Increasing use of Artificial intelligence (Al) for improving clinical trial results. AI has been generating significant interest in clinical trials to increase efficiency and ensure better outcomes — thereby making the trial results more reliable and less biased. Human clinical trials have been time-consuming, expensive and risky. In this milieu, Al is being leveraged to optimize the use of the data available to generate insight about patients and their clinical journey to effectively and rapidly identify the candidates for trial.


The novel coronavirus (COVID-19) outbreak originated in the commercial center of Wuhan, the capital of Hubei Province in China in December 2019, and then spread across the world. On 11 March 2020, after it had infected citizens of several countries around the world, the World Health Organization (WHO) belatedly declared it a global pandemic.

COVID-19 has rapidly spread to over 200 countries and regions. As on 31 May 2020, it infected almost 6.2 million people worldwide (confirmed infections), and claimed over 370,000 lives. Its spread continues unabated across developed and developing nations alike. It has stretched the healthcare infrastructure of even the most developed nations to almost breaking point, and is expected to cause economic repercussions of the kind not seen since the Great Depression of the 1930s.

Table 1 gives the latest growth forecasts of the International Monetary Fund (IMF) for 2020.

As of now, there is no approved treatment or vaccine for COVID-19. Till such a treatment comes into being — and is made available across the world at an affordable price — the impact on the global and Indian pharmaceutical industry is expected to be significant. Given below are a few key trends that are being anticipated.

Lower spend on medicines in countries, thanks to the sharp economic downturn. As Table 1 shows, the slump will be severe. This will adversely affect all sectors of the economy, most income earners and government finances.

In that scenario, there could be adverse impacts on pharmaceutical demand, where increased unemployment and lower disposable income ought to negatively affect consumer spending on healthcare and medicines. Only in some developed markets, where social security measures have helped to relatively insulate healthcare spending from downturns, could one see a limited impact.

• Impact on APIs and generics players with their over-dependence on China. Over the past few decades, India has emerged as a global hub of pharmaceutical products. However, the biggest risk for the industry has been its excess dependence on China for intermediates and APIs. Any significant disruption of this supply chain would lead to a rise in input costs and trigger global price increases for the affected products, especially generics.

The need for internalization of intermediates and APIs has been long felt by some leading Indian generics companies. Supply chain disruptions of Chinas API production due to the COVID-19 pandemic have further heightened the need for backward integration of major products.

We expect this to be a significant opportunity for Indian pharmaceutical companies to establish themselves as end-to-end manufacturers in the pharma supply chain.

• Increased spending on preventive healthcare and for public health emergencies. Ever since the COVID-19 outbreak, intensive campaigns targeted at personal hygiene have been initiated to prevent its transmission. Similarly, most countries have been found wanting an adequate healthcare infrastructure to deal with such a pandemic. With governments having to face the importance of preventive healthcare and adequate public health infrastructure, we expect that the spending on these will increase significantly in the short to medium term. Short term delays in treatment of other medical ailments. With the treatment of COVID-19 patients taking precedence, that of other medical ailments has taken a back-seat. In most cases.


2019 2020 COVID FALL
World 2.9 -3.0 -5.9
Advanced Economies 1.7 -6.1 -7.8
USA 2.3 -5.9 -8.2
Euro Area 1.2 -7.5 -8.7
UK 1.4 -6.5 -7.9
Emerging Markets 3.7 -1.0 -4.7
China 6.1 1.2 -4.9
India* 5.0 -0.5 -5.5
Latin America 0.1 -5.2 -5.3
Brazil 1.1 -5.3 -6.4
Russia 1.3 -5.5 -6.8
South Africa 0.2 -5.8 -6.0

Source: IMF, World Economic Outlook: The Great Lockdown (April 2020)

* Estimates for India are based on those put out by Goldman Sachs, JP Morgan and Credit Suisse.

the Government ordered lockdowns have significantly reduced footfalls in hospitals and clinics. Patients with other ailments are also reluctant to visit doctors and hospitals for the fear of contracting COVID-19. Besides, to manage limited available capacity, most hospitals are de-prioritizing admission of non COVID-19 cases for surgeries and other treatments. While there has been some use of technology through tele-consultations to address the needs of non COVID-19 patients, this has at best been marginal. In the short term, delays in the treatment of non COVID-19 patients can result in worsening health conditions, as well as in reduced demand for many pharmaceutical products especially in hospitals.

• Increased demand for over the counter (OTC) medicines to mitigate COVID-19 symptoms: After the pandemic outbreak, there has been a significant upsurge in panic-buying of OTC medicines relating to immunity enhancement, vitamins, analgesics and flu and anti-infective medication. This stockpiling is expected to continue in the short term resulting in short term demand surges of OTC drugs.

• Reduced in-person interactions between medical representatives and doctors. In-person interactions between medical representatives and doctors as well as pharmacists increase product awareness and promote pharmaceutical sales.

Such interaction has fallen significantly in most countries after COVID-19 due to government lockdowns as well as restrictions by hospitals and doctors themselves to avoid the spread of infection. Although remote/online interactions have taken precedence, the absence of an in-person interface may lead to a negative impact on pharmaceutical sales.

• Relative de-prioritization of innovation. With some pharmaceutical companies now more concentrated towards developing medication for the treatment of COVID-19, the broader focus on R&D and launch of new products is expected to get de-prioritized and postponed.

In addition, while some manufacturers are proceeding normally with respect to the development of life saving drugs, delays in regulatory approvals due to insufficient personnel and modifications in policies are expected to have an impact on new product launches in the short term.

• Impact on medical tourism due to travel restrictions. With most of the countries closing their borders and enforcing travel restrictions, revenues from medical tourism is expected to see a significant dip in 2020.

This would reduce the consumption of pharmaceutical products across hospitals and other pharma outlets, impacting revenues.



NAG is our largest market. In FY2020, it contributed to around 47% of the companys GG sales, and 37% of overall sales.

Revenue from the region for FY2020 was Rs.64.7 billion (US$ 910 million), representing a growth of 8% over the previous year. Even so, the year continued to see significant price erosion due to increased competition across some major products. However, this impact was to a great extent offset by an increase in volumes for some of our base products, and contribution from new product launches — the important ones being Daptomycin, Carboprost Tromethamine and Phytonadione (Vitamin K). Growth was further aided by the strengthening of the US dollar against the Indian rupee.

Some key developments were.

• Launched Daptomycin for Injection, a therapeutically equivalent generic version of Cubicin for Injection, used in the treatment of systemic and life-threatening bacterial infections.

• Launched Carboprost Tromethamine Injection, a therapeutically equivalent generic version of Hemabate injection, used in cases of an obstetrical emergency of postpartum hemorrhage.

• Launched Phytonadione Injectable Emulsion, a therapeutically equivalent generic version of Vitamin K1, used to treat and prevent unusual bleeding by increasing the bodys production of blood clotting factors.

• Gained significant market share in certain key products such as Buprenorphine and Naloxone sublingual film and Metoprolol.

• Filed eight new ANDAs, which comprise some complex products and are across different dosage forms.

Our current priority includes accelerating new product launches and increasing the market share of existing products.

The strategy is to significantly expand our portfolio and ensure the right cost structures for our products to be able to compete in this highly competitive market.

We will continue to focus on complex formulations — primarily injectables and oral solid dosage forms — as well as OTC brands in the medium term, and 505(b)(2) generics, controlled substances under class II, and non-substitutable generics in the longer term.

EMERGING MARKETS Revenue from Emerging Markets for FY2020 was Rs.32.8 billion, representing a growth of 14% compared to the previous year. This significant growth has been on account of increased revenues from our base business, new product launches and scaling up of business in new markets.

Revenue from Russia for FY2020 was Rs.16.9 billion, representing a 10% growth over the previous year. The growth was 9% in terms of the local currency (ruble).

In Russia, our key products — such as Nise, Omez, Nasivin, Femibion and Ibuclin were ranked among the top 200 best-selling formulation brands, as per IQVIA in its report for the 12-month period ended 31 March 2020.

Revenue from CIS countries (including Romania) was Rs.6.5 billion, representing a 23% increase over the previous year.

The growth was led by Ukraine through an increase in the sale of existing products, new product launches and a favorable currency, and supported by growth in Belarus due to new product launches.

In the current fiscal, we emerged as one of the winners for the supply of Olanzapine in the centralized drug procurement tender in China. We were the first Indian company to win a national tender in China.

Revenue from our Rest of the world markets (which includes Brazil, China, South Africa, and certain other markets) was Rs.9.4 billion, representing 13% growth over the previous year. This growth was primarily led by scaling up in the new markets such as Brazil, Columbia, Turkey, Chile and Malaysia.

Our focus is to improve market share in the chosen therapy areas through growth in the existing products as well as new product launches.

Our strategy for the Emerging Markets is to build a healthy portfolio pipeline, including expansion of biosimilars and oncology products. We will focus on scaling up in our major markets, which include Russia, China, Brazil, South Africa and Ukraine.


Revenue from Europe in FY2020 was Rs.11.7 billion, representing a growth of 49% vis-a-vis the previous year. This was due to increased revenues in our base markets of Germany and the UK, and was aided by expansion in the new markets of Italy, France and Spain. The increase in revenues was propelled by high volume growth and improvement in supplies, as well as new product launches across all our markets.

Currently, Europe comprises 8% of the companys global generics sales. In the medium to long-term, we expect it to grow by leveraging our in-house portfolio, seeking in-licensing opportunities, and further scaling up business in the three new markets.


Revenue from India in FY2020 was Rs.28.9 billion, representing a growth of 11% compared to the previous year.

According to the IQVIA in its report for the 12-month period ended 31 March 2020, our growth has been 11.4% versus a market growth of 10.8%. Our market rank as per MAT (March 2020) remains at 13, same as that of last year. Growth in this market has been on account of improvement in the base business performance led by an increase in volumes and price in certain products as well as launch of new products.

During the year, we launched 21 brands in India, including Versavo (the sixth bio-similar from our internal pipeline) and Celevida (our first offering, marking our foray into the nutritional segment), which aided growth.

Our strategy for the Emerging Markets is to build a healthy portfolio pipeline, including expansion of biosimilars and oncology products.

Eight of our brands (Omez, Omez D, Atarax, Econorm, Nise, Razo D, Stamlo & Ketorol) are in the top 300 brands of the Indian pharmaceuticals market (IPM).

In the near term, we will continue to drive productivity improvement and focus on our core therapeutic areas and big brands.

In the medium to long-term, our strategy is to build a healthy pipeline of differentiated products in relevant therapies including biosimilars, and expand our presence in new areas such as nutraceuticals.


The PSAI business recorded revenues of Rs.25.7 billion in FY2020, representing a 7% growth over the previous year.

In FY2020, we filed 98 DMFs globally, of which 10 were in the US.

This business primarily comprises of APIs and pharmaceutical services. We believe that the recent market developments present us with a good opportunity to expand our API business. We are also focusing on increasing our services business and expect it to be a growth driver.

Our strategy of building a sustainable and growing business involves new product launches and ramping up of base businesses in key geographies. We will also leverage our relationships with key customers by supplying materials that have value addition instead of being ‘plain-vanilla APIs. We aim to be a partner of choice for global generics manufacturers and achieve global leadership through costs and service.


The PP business recorded revenue of Rs.7.9 billion in FY2020, with a growth of 67%. During the current year, we sold the US and select other territorial rights for two of our neurology brands — ZEMBRACE SMYTOUCH (sumatriptan injection 3mg) and TOSYMRA™ (sumatriptan nasal spray 10mg). Currently, we do not directly sell any product under this business.

Going forward, our strategy is to focus on advancing the development of the two in-licensed assets — E7777 and PPN-06 — in addition to the in-house pipeline in a well calibrated manner which strives to achieve an optimal balance between risks and costs.

We will focus more on addressing larger unmet needs and bringing a highly selective and focused innovative approach through global development, versus incremental improvement.

This should enable the PP business to offer a meaningful presence in the market place. At an overall level, this aligns well with our renewed strategy to enable us to achieve self-sustainability and profitable growth across each of our businesses.


It may be recalled that the USFDA had issued a warning letter dated 5 November 2015 relating to good manufacturing practice (cGMP) deviations at our API manufacturing facilities at Srikakulam, Andhra Pradesh and Miryalaguda, Telangana, as well as at our 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 three sites by the USFDA in November 2014, January 2015 and February-March 2015, respectively.

Pending resolution of the issues identified in the warning letter, the USFDA withheld approval of new products from these facilities.

After receiving the warning letter, we promptly instituted corrective and preventive actions and submitted a comprehensive response to the USFDA, followed by periodic written updates and in-person meetings. Moreover, to minimize the business impact, we transferred certain key products to alternate manufacturing facilities.

The USFDA subsequently re-inspected these facilities between February and April 2017. The outcomes of these inspections were as follows:

• API facility at Miryalaguda: The USFDA raised three observations in the areas of older methods of validation, improvements in instrument calibration and adherence to the United States Pharmacopeia (USP) test methods.

• API facility at Srikakulam: Here, the USFDA raised two observations in (i) high-performance liquid chromatography (HPLC) maintenance, and (ii) the management of soft copies of chromatograms.

Oncology formulation facility at Duvvada: The USFDA raised 13 observations relating to investigations, batch production records, document controls, general computer systems and environmental monitoring.

Global corrective actions, as well as some specific actions, were further implemented. In addition, a detailed response was submitted to the USFDA, which included root cause, corrective actions and preventive actions and impact assessment.

The current status for these sites is as follows:

• API facility at Miryalaguda: In June 2017, the USFDA issued an establishment inspection report (EIR) indicating successful closure of the audit of this facility. This plant was again re-inspected in March 2020; and subsequently, in April 2020 we received an EIR indicating closure of the audit.

• API facility at Srikakulam: In February 2018, the USFDA issued an EIR for this facility indicating that its inspection status remains unchanged, and we were asked to carry out certain detailed investigations and analyses.

In response, we submitted the results of such investigations in October 2018. As part of the review of the response by the USFDA, certain additional follow-on queries were received by us. We responded to all queries in January 2019. In February 2019, the USFDA requested answers to three follow-up questions to us; and we responded in March 2019.

In January 2020, the USFDA again audited this plant and a Form 483 was issued with five observations.

In May 2020, based on our responses and actions taken, the USFDA issued an EIR indicating closure of the audit, and the inspection classification of this facility was determined as ‘voluntary action indicated (VAI).

Oncology formulation facility at Duvvada: In June 2018, the company requested the USFDA to schedule a re-inspection of the oncology formulation manufacturing facility at Duvvada. In October 2018, the re-inspection was completed and the USFDA issued Form 483 with eight observations. We responded to these on 20 November 2018. Subsequently, in February 2019, the USFDA issued an EIR indicating the successful closure of the audit of this facility. This plant was again re-inspected in June 2019 and August 2019 and subsequently, we received EIRs for these inspections in September 2019 and February 2020, indicating closure of the audits.

Thus, there have been satisfactory audit closures in all the three facilities.

We remain fully committed to following high standards of quality and to strive towards further strengthening of our quality management systems and processes for sustainability. Our plans to enhance quality management systems and operations include improvements in rigor of investigations and document control systems, standardization of instrument calibrations, strengthening controls with respect to information technology as well as shop floor training programs, and simplifying and standardizing standard operating procedures and batch records on the shop floor.

The company has initiated additional operational improvements such as shop floor supervision and process walks, engineering, implementation of electronic batch records to eliminate manual errors — all with a focus on robustness of processes. We are fully committed to safe and efficacious products for our patients.


Table 2 gives the abridged IFRS consolidated revenue performance for FY2020 compared to FY2019. Table 3 gives the consolidated income statement.


Total revenue grew by 13% to Rs.174,600 million in FY2020. The growth was primarily aided by an increase in volume and new product launches across our businesses and benefits due to depreciation of rupee against the US dollar, partially offset by price erosion in our GG segments North America (the US and Canada), Europe and some other Emerging Markets. Growth was also aided by the sale of the US and select territorial rights for two of our neurology brands in the PP segment.


Gross profit increased by 13% to Rs.94,009 million in FY2020. This resulted in a gross profit margin of 53.8% in FY2020-representing a decrease of 40 basis points compared to FY2019. The gross profit margin for GG was 56.8%. The GG gross profit margin was largely impacted by price erosion in the US and Europe, which was partly offset by new product launches with higher margins, cost optimization initiatives taken by the company, and the depreciation of the rupee against the US dollar. For the PSAI business, the gross profit margin was 24%. PSAIs gross profit margin declined primarily on account of the product mix.


SG&A expenses increased by 3% to Rs.50,129 million in FY2020. This was largely attributable to an increase in personnel costs, primarily on account of annual increments, freight outward costs due to increase in volumes, and increases pertaining to depreciation of rupee.

These increases were offset by significant efforts and continued focus on cost optimization. SG&A accounted for 28.7% of sales in FY2020 versus 31.6% in FY2019 — or an improvement of290 basis points over last year.


R&D expenses for FY2020 were Rs.15,410 million, or 8.8% of revenue, versus 10.1% in FY2019. The absolute and proportional decrease in R&D spends were in line with the productivity improvement measures undertaken by the company, including cost optimization, productivity gains and prioritization of projects. These have been executed in a manner that does not impinge on building the pipeline of complex generics, biosimilars and differentiated products.


In FY2020, there has been an impairment charge of Rs.16,757 million, which pertains to charges of:

a) Rs.11,137 million for the product Ethinyl Estradiol/Ethenogestral vaginal ring (generic equivalent to Nuvaring).

During the year, there was a launch of both generic and authorized generic versions of the product, thereby reducing the overall potential of our future cash flows.

b) Rs.4,385 million for products tobramycin inhalation solution, ramelteon tablets 8 mg, and imiquimod cream. While the impairment for tobramycin and ramelteon was triggered by adverse market conditions- such as increased competition and reduced selling prices by contestants- the company decided to drop the launch of imiquimod cream.

c) Rs.1,235 million on other products of the GG and PP segment, as the company determined that there was a decrease in the market potential of these products, primarily due to higher than expected price erosion and increased competition leading to lower volumes.


The net finance income was Rs.1,478 million in FY2020 versus Rs.1,117 million in FY2019.


Net profit increased by 4% to Rs.19,498 million in FY2020. This represents a PAT margin of 11.2% of revenues versus 12.2% in FY2019. Net profit after tax was higher than the profit before tax largely due to recognition of MAT credit and creation of deferred tax assets, in line with the requirement of accounting standards.


The data are given in Tables 4 and 5. Cash generated from operating activities in FY2020 was Rs.29,841 million. Net outflow from investing activities amounting to Rs.4,923 million in FY2020 includes net investment in property, plant, equipment and intangibles to build capacity and capabilities for future business growth. Cash outflow from financing activities was Rs.25,159 million. Closing cash and cash equivalents as on 31 March 2020 was Rs.1,962 million.


In FY2020, our total borrowings decreased by Rs.16,370 million.

As on 31 March 2020 the companys debt-to-equity ratio was 0.14 as against 0.27 on 31 March 2019. The net debt-to-equity position was at (0.03) versus 0.09 last year. Table 6 gives the data.




($) (Rs.) % ($) (Rs.) %
Global Generics 1,832 138,123 79.1 1,630 122,903 79.9 12
North America 64,659 59,957 8
Europe* 11,707 7,873 49
India 28,946 26,179 11
Emerging Markets# 32,811 28,894 14
Pharmaceutical Services and Active Ingredients (PSAI) 342 25,747 14.8 320 24,140 15.7 7
Proprietary Products & Others 142 10,730 6.1 90 6,808 4.4 58
Total 2,316 174,600 100.0 2,040 153,851 100.0 13

* Europe includes Germany the UK and out-licensing sales business, Italy, France and Spain.

# Emerging markets refer to Russia, other CIS countries, Romania and Rest of the World markets.

FY2020 FY2019
($) (Rs.) % ($) (Rs.) % GKOWIH %
Revenues 2,316 174,600 100.0 2,041 153,851 100.0 13
Cost of Revenues 1,069 80,591 46.2 934 70,421 45.8 14
Gross Profit 1,247 94,009 53.8 1,107 83,430 54.2 13
Operating Expenses
Selling, General & Administrative expenses 665 50,129 28.7 646 48,680 31.6 3
Research and Development expenses 204 15,410 8.8 207 15,607 10.1 (1 )
Impairment of non-current assets 222 16,767 9.6 3 210 0.1 7,884
Other operating (income) (57) (4,290) (2.5) (26) (1,955) (1.3) 119
Results from operating activities 212 15,993 9.2 277 20,888 13.6 (23)
Finance (income), net (20) (1,478) (0.8) (15) (1,117) (0.7) 32
Share of (profit) of equity accounted investees, net of income tax (7) (561) (0.3) (6) (438) (0.3) 28
Profit before income tax 239 18,032 10.3 298 22,443 14.6 (20)
Income tax expense (19) (1,466) (0.8) 48 3,648 2.4 (1 40)
Profit for the period 259 19,498 11.2 249 18,795 12.2 4
Diluted Earnings Per Share (EPS) (in Rs.) 117.40 113.09 4
Note: The conversion rate is considered as US$ 1 = 75.39


• Our ERM function operates with the following objectives:

• Proactively identify and highlight risks to relevant stakeholders;

• Facilitate discussions around risk prioritization and mitigation;

• Provide a framework to assess appetite;

• Develop systems to warn when the appetite is being breached; and

• Provide an analysis of residual risk.

The ERM team connects with our business units and functions, which are the primary sources for risk identification. It also monitors external trends on liabilities and risks reported by peers in the industry.

The team collaborates with the compliance, internal audit and other assurance teams to identify and mitigate risks of business units, including risk relating to cyber security.

Our ERM function focuses on the identification of key business, and operational and strategic risks. These are carried out through structured interviews, on-call discussions, or review of incidents.

Risks are aggregated at the unit, function and organization levels and are categorized by risk groups. Our response framework categorizes these risks into (i) internal (preventable), (ii) internal (strategic) and (iii) external risks. The finance, investment and risk management (FIRM) council is a management-level committee that helps ERM to prioritize organization-wide risks and steer mitigation efforts in line with our risk appetite.

Mitigation work carried out by the ERM team is periodically reviewed, and progress on key risks is discussed with the FIRM council, our senior management, as well as at the risk management committee of the board of directors. These include (i) updates on the progress of mitigation of key risks; and (ii) specific risk-related initiatives carried out during the year.

During FY2020, a review and benchmarking of ERM framework was undertaken.

The risk mitigation efforts were focused towards cyber security risk, quality and regulatory risk, compliance and ethics risks, water risks, climate change risks and their mitigation strategies. Efforts were also undertaken in assessing and strengthening data privacy related exposure and other operating risks.


In FY2020, the focus was on accelerating the transformation and growth journey that our organization had embarked in FY2019. Several interventions have been made to realign the organization culture, business systems and processes to enable market leading business growth.

At the beginning of FY2019, we revamped our organization banding structure to create a system that was more meritocratic, less hierarchical and progressive. The structure is based on the role-based philosophy — where employees are identified by the role they play and growth is viewed more holistically beyond vertical moves.

Several growth bridges were rolled out to provide an ecosystem that enables employees to grow through exposure to different learning experiences.

These included the extension of our flagship Young Leaders program to internal employees, a blended learning journey for developing women leaders (called Chrysalis), exposure to work in areas outside their roles through experiential projects and reverse mentoring.

To execute on our strategy with rigor and deliver consistent results, a Strategy Deployment Process along with Lean Daily Management has been revived as the execution system. Integrated with tools, digital and analytics and leadership behaviors, these will constitute our way of excellence.

We recently rolled out a simplified and commonly understood framework of leadership behaviors called ASPIRE.

This is integrated in our people processes like recruitment, talent assessment and performance management.

We continue to focus on strengthening our talent processes through cadre and capability building interventions.

In creating a culture of learning, we have institutionalized programs that incentivize employees to share their expertise, develop managers as coaches and celebrate learning and growth.

Digital capability building and transformation is a key focus area. In our efforts to enhance employee experience, we have digitized several people processes such as recruitment, performance management, and increments. The launch of our first ever digital personal assistant, Amy, and gamified learning through apps have been some early successes in this space.

Diversity and inclusion continue to remain important in the organizational agenda.

For the third time, we have been featured in the 2020 Bloomberg Gender Equality Index for our commitment to gender equality.

We have also strengthened our efforts towards actively promoting employment for specially-abled individuals. We signed to the Valuable 500 initiative earlier this year. In this initiative, we committed to get disability inclusion included in our board agenda and undertook a pledge for a 10% increase in employing people with physical disabilities.


We continue to make progress on our digital transformation journey in line with our planned roadmap. In FY2020, we refreshed our digital strategy and realigned our efforts to:

a) Digitize the Core: We continue on our journey to Reimagine, Simplify and Digitize all core business processes across the organization. We initiated reimplementation of our ERP system SAP to the latest version S/4 HANA.

This project was used as a vehicle to re-engineer processes across the organization, making them

Opening Cash and Cash Equivalents 2,228 2,542
Cash flows from:
(a) operating activities 29,841 28,704
(b) investing activities (4,923) (7,727)
(c) financing activities (25,159) (21,326)
Effect of exchange rate changes (25) 35
Closing Cash and Cash Equivalents 1,962 2,228

‘digital native and nimble. We also made good progress in extending digitization in functional processes, with platforms like e-Lab Notebook in R&D, manufacturing execution systems (MES), laboratory information management systems (LIMS), document management systems (DMS), customer relationship management (CRM) and others. These are intended to strengthen our process foundations, improve productivity and consistency in execution. We are also applying technologies like robotic process automation on top of this to automate repeatable processes across the value chain.

b) Data as an Asset. We embarked on a journey (i) to ‘Collect all data internal and external, (ii) to ‘Connect data across processes and systems to make information more meaningful, and (iii) to ‘Analyze by creating insights that help us in generating business value.

We are making good progress on our Data Lake journey to make this happen. We have started to see success on our data platforms using artificial intelligence (AI) based insights in all areas of the value chain. These have helped in faster drug development, improvement in productivity and quality of manufacturing, and personalized connect with our customers. One example is manufacturing, where we are able to use advanced analytics to help in yield optimization, create a golden tunnel for process parameters to generate better quality outcomes and digital dashboards for faster execution.

c) Platforms to Transform and Win.

We have also started to reimagine Dr. Reddys as a platform-based organization that will bring together capabilities of the entire ecosystem to enhance our value proposition to our partners, customers and patients. For instance, our Vikreta Connect platform now offers not just collaboration with our suppliers but adjacent services like bill discounting to create a win-win partnership. We have identified a few more platforms that are critical to take us on this journey, and believe that these will transform the way in which we interact with our customers, partners and the healthcare ecosystems around the globe.


FY2020 has seen us continuing the improvement of performance in various domains that we embarked upon last year, in spite of the risks and challenges that are inherent to the pharmaceutical industry.

The pricing pressures in the US and Europe have continued. However, our strong performance was led by volume growth and new product launches across our markets. Having said that, some delays in the launch of a few key products hampered even further growth.

Successful closure of the USFDA audits at our three plants reiterate our commitment towards quality.

We continued our journey towards creating a leaner business model, leveraging productivity improvement, cost control and increased efficiencies across several functions in FY2020. We expect this journey to continue with increased rigor in FY2021, and thus provide the necessary impetus to our performance next year.

We will continue to focus on patient-centric product innovation, operational excellence, continuous improvement and attaining leadership in chosen spaces.

For FY2021, the big questions are.

(i) What are we doing about COVID-19Rs. and (ii) How will it affect our business Rs.

In the short run, the national lockdown that was imposed in India from 25 March 2020 coupled with lockdowns in other parts of the world led to significant disruption in the supply chain and logistics. These impacted normal level of plant operations due to restrictions on people movement; created restrictions on the face-to-face meetings

Trade Receivables (A) 50,278 39,869 10,409
Inventories (B) 35,066 33,579 1,487
Trade Payables (C) 16,659 14,553 2,106
Working Capital (A+B-C) 68,685 58,895 9,790
Other Current Assets (D) 45,026 41,053 3,973
Total Current Assets (A+B+D) 130,370 114,501 15,869
Short & Long-term loans and borrowings, current portion (E) 20,707 16,381 4,326
Other Current Liabilities (F) 35,448 28,766 6,682
Total Current Liabilities (C+E+F) 72,814 59,700 13,114


Total Shareholders Equity 154,988 140,197 14,791
Long-term debt (current portion) 4,266 4,256 10
Long-term debt (non-current portion) 1,304 22,000 (20,696)
Short-term borrowings 16,441 12,125 4,316
Total Debt 22,011 38,381 (16,370)

with doctors; impacted the normal level of R&D activities; and, at an overall level, challenged the usual manner of doing business.

We rose to the occasion with timely proactive measures supported by our strong digital infrastructure. Consequently, we have been able to continue most of our business operations despite the initial challenges. We are using digital channels for enabling work from home and reaching out to doctors, customers and vendors. Various initiatives have been undertaken to ensure that our manufacturing related operations continue unabated. In addition, a few products related to COVID-19 are under development.

While we saw some incremental sales in certain markets, such as the US, Europe and Russia, due to an increase in panic buying, our sales also got impacted and/or deferred in PSAI, the India business and few Emerging Markets. On an overall basis, however, there was no major impact on either in Q4 FY2020 or the full year FY2020.

Having said so, we believe FY2021 will have more uncertainties than ever before. Consequently, our overall performance may be quite volatile.

Equally, we remain cautiously optimistic of re-calibrating our levers to suit the new business environment. If we do this successfully, we should be able to come to terms with the new COVID-19 reality. And, if that occurs, we should perform satisfactorily in FY2021.


Our management has prepared and is responsible for the financial statements that appear in this report. These are in conformity with International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board, and accounting principles generally accepted in India and therefore, include amounts based on informed judgments and estimates. The management also accepts responsibility for the preparation of other financial information that is included in this report. This write up includes some forward-looking statement, within the meaning of Section 27A of the US Securities Act of 1933, as amended and Section 21E of the US Securities Exchange Act of 1934, as amended.

The management has based these forward-looking statements on its current expectations and projections about future events. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results to differ materially.

These factors include, but are not limited to, changes in local and global economic conditions, changes in government regulations, ability to successfully implement the strategy, manufacturing or quality control outcomes, ability to achieve expected results from investments in our product pipeline, change in market dynamics, technological change, currency fluctuations and exposure to various market risks. By their nature, these expectations and projections are only estimates and could be materially different from actual results in the future. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect managements analysis and assumptions only as of the date hereof. In addition, readers should carefully review the other information in this annual report and in our periodic reports and other documents filed with all the stock exchanges.