Dr. Reddy(RDY) - 2024 Q4 - Annual Report

FORM 20-F Filing Information Registrant Information Identifies Dr. Reddy's Laboratories Limited, an Indian company, filing its Form 20-F for FY2024, with NYSE-listed securities - Dr. Reddy's Laboratories Limited is an Indian company (Telangana, India) filing its annual report on Form 20-F for the fiscal year ended March 31, 2024[2] Securities Registered on New York Stock Exchange | Title of Each Class | Trading Symbol | Name of Each Exchange on which Registered | | :------------------ | :------------- | :---------------------------------------- | | American depositary shares | RDY | New York Stock Exchange | | representing one equity share | | | - As of the close of the period covered by the annual report, there were 166,818,266 Equity Shares outstanding[7] Currency of Presentation and Defined Terms Clarifies report currencies (USD, INR) and defines key terms, with IFRS financials translated to USD at Rs.83.34 - Financial statements are prepared in Indian rupees (INR) in accordance with International Financial Reporting Standards (IFRS) as issued by the IASB[20] - Convenience translations from Indian rupees to U.S. dollars are at a certified foreign exchange rate of U.S.$1 = Rs.83.34, as published by the Federal Reserve Board of Governors on March 29, 2024[23] Forward-Looking Statements and Risk Factor Summary Highlights forward-looking statements and summarizes key risks across operations, generics, compliance, global business, ESG, and reputation - Forward-looking statements are identified by words like 'may', 'will', 'should', 'expects', 'plans', 'intends', 'anticipates', 'believes', 'estimates', 'predicts', 'potential', or 'continue' and similar expressions[25] - Key risks include: - Ability to develop and commercialize new products, manufacturing/quality control issues, supply chain disruptions, IT system breaches, and personnel retention[27] - Intense competition, price erosion, and regulatory delays in the generics business[27] - Legal proceedings, extensive governmental regulation, healthcare reforms, and potential patent infringement liabilities[29] - Geopolitical instability (Middle East, Russia-Ukraine conflict), currency fluctuations, and tax liabilities[29] - Non-compliance with anti-bribery laws (e.g., FCPA) and ESG/climate change topics[29] - Reputational damage from inadequate performance or cyber-attacks[29] PART I ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS This section states that the information regarding the identity of directors, senior management, and advisers is not applicable for this filing - Information regarding the identity of directors, senior management, and advisers is not applicable for this filing[34] ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE This section indicates that information regarding offer statistics and expected timetable is not applicable - Information regarding offer statistics and expected timetable is not applicable[35] ITEM 3. KEY INFORMATION This section provides key information, including a summary of capitalization and indebtedness, reasons for the offer and use of proceeds (both noted as not applicable), and a comprehensive overview of risk factors that could materially affect the company's business, financial condition, results of operations, and cash flows 3.A. [Reserved] This sub-section is reserved and contains no information 3.B. Capitalization and indebtedness This sub-section states that information regarding capitalization and indebtedness is not applicable - Information regarding capitalization and indebtedness is not applicable[36] 3.C. Reasons for the offer and use of proceeds This sub-section indicates that information regarding the reasons for the offer and use of proceeds is not applicable - Information regarding the reasons for the offer and use of proceeds is not applicable[37] 3.D. Risk factors This section details various material risks, including those related to company operations, regulatory compliance, global business, financial and economic factors, and specific risks for investments in Indian companies and ADSs Material Risks Relating to Our Company and Our Business This sub-section outlines significant risks directly impacting the company's operations, including regulatory compliance failures, challenges in developing and commercializing new products, anti-bribery law violations, cybersecurity threats, data privacy regulations, geopolitical instability, supply chain disruptions, talent retention, healthcare reforms, intense competition, asset impairment, environmental compliance, and product liability claims - Failure to comply with regulatory standards (e.g., U.S. FDA, MHRA) in manufacturing quality products can lead to inspection observations (Form 483, OAI status, warning letters), delayed product approvals, import alerts, and costly remedial actions[40][41] - Success depends on the ability to develop and commercialize new pharmaceutical products, including complex biologics and biosimilars, which is time-consuming, costly, and involves high business risk due to R&D uncertainties, clinical trials, and competition[48][53] - Significant disruptions of IT systems, data security breaches, or cyber-attacks could lead to loss/theft of information, disruption of business processes (R&D, supply chain), and reputational damage, despite cybersecurity insurance[65][67][68] - The company is subject to evolving data privacy and security laws (e.g., GDPR, CCPA/CPRA, DPDP Act in India) across multiple jurisdictions, with non-compliance potentially resulting in substantial fines (up to EUR 20 million or 4% global turnover for GDPR, Rs.2.5 billion for DPDP Act) and reputational harm[75][76][78][81] - Operations in politically and economically unstable regions (e.g., China, Latin America, Russia, Ukraine, Middle East) expose the company to risks such as changes in capital/exchange controls, expropriation, trade regulations, and military hostilities, which can disrupt supply chains and sales[84][85][87][89] - The pharmaceutical industry is highly competitive and rapidly consolidating, leading to increased pricing pressures, especially in the generics market due to accelerated FDA approvals and strategies by brand-name manufacturers (e.g., authorized generics, patent extensions)[108][110][113][114] - Increased focus on ESG disclosures and climate change topics means inadequate performance or management in these areas could harm growth, reputation, employee attraction/retention, strategic objectives, access to capital, and share price[133][135][138][139] Emerging Risks This section addresses new and evolving risks, including liabilities arising from the increasing use of social media and mobile communication tools, the proliferation of misinformation, and the growing threat of counterfeit products in the pharmaceutical market, which can harm patient safety and company reputation - Increasing reliance on social media and mobile communication tools poses risks of regulatory violations, loss of trade secrets, public exposure of personal information, social engineering attacks, and reputational damage from misinformation[151][153][154] - The industry faces challenges from illegal counterfeiting and the presence of counterfeit products, which are often unsafe or ineffective, can contain harmful substances, and may damage patient confidence and the company's reputation[155][156][157] General Risks That Are Not Specific to Our Company This sub-section covers broader risks not unique to the company, such as adverse economic conditions (inflation, reduced consumer spending, credit risks), climate change impacts on production and supply chains, stringent labor laws, challenges in acquisitions and strategic alliances, and the potential for accidents involving dangerous materials - Current economic conditions, including accelerated inflation, can lead to increased costs (labor, raw materials, freight) that cannot be passed on to customers, higher interest rates, and credit risks from unstable counterparties, negatively affecting financial performance[160][161][163] - Climate change and related regulations (e.g., carbon pricing, water usage limits) pose risks of natural disasters, disruptions to production/supply chains, increased operating costs, and potential revenue decline[164][165][166] - Difficulties in identifying or consummating acquisitions and strategic alliances, or integrating acquired businesses, can harm competitiveness and growth prospects due to intense competition for targets, unforeseen regulatory changes, and challenges in retaining skilled personnel[169][173] - Fluctuations in exchange rates (e.g., U.S. dollar, Euro, Russian rouble against Indian rupee) and interest rate movements can adversely affect revenues, costs, and overall financial results, despite the use of derivative financial instruments for hedging[174][176] - The use of tender systems and other forms of price control in various markets (e.g., Germany) can reduce product prices and market opportunities due to competitive bidding, impacting margins[178][179] Risks Relating to Investments in Indian Companies This sub-section highlights risks specific to operating as an Indian company, including compliance and litigation risks from periodic amendments to Indian regulations (e.g., Companies Act, SEBI Listing Regulations, FEMA) and the significant influence of principal shareholders, which could affect minority shareholder interests - As an Indian company, the registrant is subject to periodic amendments in Indian regulations (e.g., Companies Act, SEBI Listing Regulations, FEMA), which can lead to compliance uncertainties and higher costs[200][202][203] - Principal shareholders (full-time executive directors and their immediate families) beneficially owned 26.65% of issued shares as of March 31, 2024, giving them significant influence over shareholder approvals, potentially affecting minority shareholder interests or impeding corporate transactions[205] Risks Relating to Our ADSs That Are Not Specific to Our Company or Industry This sub-section addresses risks specific to the company's American Depositary Shares (ADSs), including market price volatility, negative media impact, restrictions on transferring equity shares underlying ADSs and repatriating proceeds, limits on depositing shares into the ADS facility, and potential dilution for U.S. investors unable to exercise preemptive rights - Quarterly fluctuations in revenues, operating results, and cash flows can lead to volatility in the trading price of equity shares and ADSs[207] - Indian law imposes restrictions on transferring equity shares obtained upon conversion of ADSs and repatriating proceeds, which may cause ADSs to trade at a premium or discount to the market price of equity shares[209] - U.S. investors in ADSs may be unable to exercise preemptive rights available to non-U.S. shareholders due to U.S. securities law registration requirements, potentially diluting their proportional interests[213][214] - The market price of ADSs and the U.S. dollar value of dividends can be negatively affected by fluctuations in the U.S. dollar to Indian rupee exchange rate[224] ITEM 4. INFORMATION ON THE COMPANY This section provides a comprehensive overview of Dr. Reddy's Laboratories, including its history, recent business developments, strategic direction, detailed segment-wise business operations, organizational structure, and property, plant, and equipment information 4.A. History And Development Of The Company Dr. Reddy's Laboratories Limited was incorporated in India in 1984, becoming a public limited company in 1985 and listing on the NYSE in 2001, with recent key business developments including agreements for ALS therapy commercialization, investment in renewable energy, acquisition of a women's health product portfolio, and a distribution agreement for vaccines in India - Dr. Reddy's Laboratories Limited was incorporated on February 24, 1984, and listed on the New York Stock Exchange on April 11, 2001[226] - Key business developments in FY2024 include: - Agreement with Coya Therapeutics, Inc. for development and commercialization of COYA 302 (ALS therapy) in the US, Canada, EU, and UK for an upfront payment of Rs.622 million (US$7.5 million)[228][229] - Investment in O2 Renewable Energy IX Private Ltd for renewable energy supply[230] - Acquisition of MenoLabs® product portfolio (women's health and dietary supplements) from Amyris, Inc. for Rs.228 million (US$3 million)[231] - Exclusive distribution agreement with Sanofi Healthcare India Private Limited (SHIPL) for vaccine brands in India, positioning Dr. Reddy's as the second-largest vaccine seller in India[232] Capital Expenditures (Net of Sales of Capital Assets) | Fiscal Year Ended March 31 | Amount (Rs. in millions) | | :------------------------- | :----------------------- | | 2024 | 26,350 | | 2023 | 18,784 | | 2022 | 15,733 | - As of March 31, 2024, the company had contractual commitments of Rs.18,177 million for capital expenditures, intended to be financed through internal operating cash flows and other investments[235] 4.B. Business Overview Dr. Reddy's is an integrated global pharmaceutical company focused on affordable and innovative medicines, with a strategy built on market leadership, operational excellence, and patient-focused innovation, operating through Global Generics, PSAI, and Others segments in key markets - The company's core purpose is 'accelerating access to affordable and innovative medicines' under the motto 'Good Health Can't Wait'[241] - Growth strategy is built on three pillars: market leadership in chosen spaces, operational excellence and continuous improvement, and patient-focused innovation[245] Revenue by Business Segment (FY2024, 2023, 2022) | Segment | 2024 (Rs. in millions) | % of Total Revenue | 2023 (Rs. in millions) | % of Total Revenue | 2022 (Rs. in millions) | % of Total Revenue | | :--------------------------------------- | :--------------------- | :----------------- | :--------------------- | :----------------- | :--------------------- | :----------------- | | Global Generics | 245,453 | 88% | 213,768 | 87% | 179,170 | 84% | | Pharmaceutical Services and Active Ingredients (PSAI) | 29,801 | 11% | 29,069 | 12% | 30,740 | 14% | | Others | 3,910 | 1% | 3,042 | 1% | 4,481 | 2% | | Total Revenue | 279,164 | 100% | 245,879 | 100% | 214,391 | 100% | Our Product and Service Offerings The company's offerings span branded and unbranded generics, biosimilars, active pharmaceutical ingredients (APIs), and contract research and manufacturing services, with a key focus on patient-centric innovation to reach 1.5 billion patients by 2030 - Global Generics segment offers branded and unbranded drug products, including biosimilars, aiming for affordability and market leadership[246][249] - PSAI segment provides technologically advanced APIs and niche pharmaceutical services (contract research, development, and manufacturing) to innovator and biotechnology companies[247] - The 'Others' segment includes Aurigene Oncology Limited (oncology/inflammation therapies), SVAAS Wellness Limited (digital healthcare), and Proprietary Products (differentiated formulations)[247] - Innovation efforts focus on patient-centric healthcare solutions, including digital platforms, direct-to-consumer channels, and clinically proven nutraceuticals, with a goal to reach 1.5 billion patients by 2030[248] Operating Priorities The company prioritizes execution excellence through initiatives focused on safety, quality (including 'Quality by Design'), operational excellence (continuous improvement), and leadership development to create sustainable customer value - Operating priorities include: - Safety: Increasing awareness and achieving a safe working environment[257] - Quality: Robust processes and 'Quality by Design' to ensure product safety and high standards[257] - Operational Excellence: Continuous improvement framework across the value chain[257] - Leadership Development: Focused efforts and structured programs to enhance leadership behavior[257] Global Generics Segment The Global Generics segment's revenues increased by 15% to Rs.245,453 million in FY2024, driven by growth in North America, Europe, and Emerging Markets, partially offset by a decline in India, focusing on manufacturing and marketing branded and unbranded finished pharmaceutical products Global Generics Segment Revenue (FY2024 vs FY2023) | Fiscal Year | Revenue (Rs. in millions) | YoY Change (%) | | :---------- | :------------------------ | :------------- | | 2024 | 245,453 | +15% | | 2023 | 213,768 | | - Revenue increase was observed in North America, Europe, and Emerging Markets, partially offset by a decline in India[252] India (Global Generics) India accounted for 19% of Global Generics sales in FY2024, experiencing a 5% revenue decrease due to non-core brand divestments, despite growth in existing products and new launches, facing competition and regulatory changes - India contributed 19% of total Global Generics segment sales in FY2024[259] India Global Generics Revenue (FY2024 vs FY2023) | Fiscal Year | Revenue (Rs. in millions) | YoY Change (%) | | :---------- | :------------------------ | :------------- | | 2024 | 46,407 | -5% | | 2023 | 48,932 | | - The revenue decline was largely due to the divestment of non-core brands in FY2023, partially offset by increased sales prices, volumes of existing products, and new product launches[558] - Ranked 11th in the Indian pharmaceutical market with a 2.89% market share (IQVIA, March 2024)[263] - Compliance with India's Uniform Code for Pharmaceutical Marketing Practices (UCPMP) became mandatory in March 2024[265] - The Drugs (Prices Control) Order, 2013 (DPCO) and National Pharmaceuticals Pricing Policy, 2012, continue to subject certain drugs to price controls, impacting revenues and profitability[272][273][278] Russia and other Countries of the former Soviet Union and Romania (Global Generics) Russia contributed 9% of Global Generics revenues in FY2024, with sales increasing 5% in INR and 16% in RUB, driven by volume and price growth, while operations in Russia and Ukraine are continuously monitored for geopolitical risks and regulatory developments - Russia accounted for 9% of Global Generics segment revenues in FY2024[279] Russia Global Generics Revenue Growth (FY2024 vs FY2023) | Metric | FY2024 (Rs. in millions) | YoY Change (INR) | YoY Change (RUB) | | :--------------- | :----------------------- | :--------------- | :--------------- | | Revenue | 22,301 | +5% | +16% | - Revenue growth in Russia was supported by both volume (7%) and price (9%) increases, with promoted brands showing double-digit growth[282] - The company is the top-ranked Indian pharmaceutical company in Russia (IQVIA, March 2024)[280] - Ongoing military conflict between Russia and Ukraine impacts supply chain (increased freight costs, lead times) and necessitates continuous monitoring of employee safety and cybersecurity risks[284][285][286] - Russian government programs like 'Pharma 2030' aim to increase domestic medicine production and reduce reliance on imports, potentially impacting foreign manufacturers[291][293] - Reference pricing regime and state regulation of prices for vital and essential medicines (ZhNVLS/EDL) continue to influence pharmaceutical pricing in Russia[295][299][300] North America (the United States and Canada) (Global Generics) North America generated 53% of Global Generics sales in FY2024, with revenues increasing 28% in INR and 24% in USD, driven by new product launches and acquisitions, despite price erosion, operating within an extensive U.S. regulatory environment - North America (US and Canada) accounted for 53% of total Global Generics segment sales in FY2024[331] North America Global Generics Revenue (FY2024 vs FY2023) | Fiscal Year | Revenue (Rs. in millions) | YoY Change (INR) | YoY Change (USD) | | :---------- | :------------------------ | :--------------- | :--------------- | | 2024 | 129,895 | +28% | +24% | | 2023 | 101,704 | | | - Revenue increase was largely due to new product launches, acquisitions (e.g., Mayne Pharma portfolio, MenoLabs® business), and increased sales volumes, partially offset by price erosion[561][342] - As of March 31, 2024, the company had 325 cumulative ANDA filings with the U.S. FDA, with 86 pending approvals (including 50 Paragraph IV filings and 24 first-to-file opportunities)[335][556] - The U.S. regulatory environment includes the Federal Food, Drug and Cosmetic Act, Hatch-Waxman Act (governing generic drug approvals and 180-day exclusivity), GDUFA (user fees for generic products), BPCIA (biosimilar pathway), and the Inflation Reduction Act (IRA) of 2022 (Medicare price negotiations, rebates)[352][356][372][392][410] - The company is a defendant in over 3,275 lawsuits in the In re Zantac (Ranitidine) Products Liability Litigation Multidistrict Litigation (MDL-2924) and other state court actions, alleging product liability claims, and intends to vigorously defend itself[1470][1477] - The company is also a defendant in the Generic Drug Price Fixing Antitrust Multi-District Litigation (MDL 2724) and related state actions, alleging industry-wide conspiracy to fix prices and allocate markets for generic drugs, and intends to vigorously defend itself[1481][1483][1489] Europe (Global Generics) European sales for the Global Generics segment increased by 17% to Rs.20,511 million in FY2024, driven by volume growth and new product launches, despite price erosion, operating within EU regulatory frameworks similar to the US, including FMD and IDMP implementation Europe Global Generics Revenue (FY2024 vs FY2023) | Fiscal Year | Revenue (Rs. in millions) | YoY Change (%) | | :---------- | :------------------------ | :------------- | | 2024 | 20,511 | +17% | | 2023 | 17,603 | | - Revenue increase was primarily due to increases in volumes for existing products and new product launches, partially offset by price erosion[557] - Germany's generics market operates largely on a tender-like system, leading to significant pressure on product margins, with over 90% of generic products supplied through competitive bidding[419] - The company entered the medical cannabis sector in Germany with the acquisition of Nimbus Health GmbH in February 2022, and Germany legalized possession/consumption of limited cannabis quantities in April 2024[422] - EU regulations require prior marketing authorization, compliance with quality standards (e.g., GMP), and data exclusivity periods for innovator products, with no equivalent mechanism for generic patent challenges or market exclusivity[429][433][435] - The Falsified Medicines Directive (FMD) requires safety features on prescription drug packaging to combat counterfeiting, and the International Standards for Identification of Medicinal Products (IDMP) are being implemented for pharmacovigilance[447][442][445] Rest of the World Markets (Global Generics) The 'Rest of the World' markets contributed 7.2% of Global Generics revenues in FY2024, with a 13% increase to Rs.17,713 million, driven by new product launches and strong performance in Brazil, along with tender opportunities in North Africa and Malaysia, and expanding operations in China - Revenues from 'Rest of the World' markets accounted for 7.2% of total Global Generics segment revenues in FY2024[457] Rest of the World Global Generics Revenue (FY2024 vs FY2023) | Fiscal Year | Revenue (Rs. in millions) | YoY Change (%) | | :---------- | :------------------------ | :------------- | | 2024 | 17,713 | +13% | | 2023 | 15,709 | | - Growth was largely attributable to increased sales volumes of existing products, new product launches in Brazil, and tender opportunities in North Africa and Malaysia[457][564] - The company is increasing operations and new product registrations in China, with Olanzapine successfully listed in a 12-province volume-based procurement program in 2021[454][455] Global Generics Manufacturing and Raw Materials The Global Generics segment operates eleven cGMP-compliant manufacturing facilities, sourcing ingredients from in-house API facilities and qualified third-party vendors, with outsourced logistics and regular regulatory inspections - The Global Generics segment has eleven cGMP-compliant manufacturing facilities: ten in India (four in SEZ) and one in Shreveport, Louisiana, USA[458] - Ingredients for finished products are sourced from in-house API facilities and qualified local and non-local vendors, with efforts to identify multiple suppliers for risk mitigation[460] - Logistics services for storage and distribution in major markets (US, EU, Russia, Brazil, South Africa, Australia, etc.) are outsourced to third-party providers[461] - Manufacturing facilities are periodically inspected by various regulatory authorities, including the U.S. FDA, U.K. MHRA, and German BfARM[463] - A routine GMP inspection at formulations manufacturing facilities in Duvvada, Visakhapatnam, India, in May 2024 resulted in two observations, to which the company responded by June 7, 2024[464] Pharmaceutical Services and Active Ingredients ("PSAI") Segment The PSAI segment's revenues increased by 3% to Rs.29,801 million in FY2024, driven by new product launches and favorable currency exchange rates, despite some volume and price decreases, manufacturing over 150 APIs and providing CDMO services to global pharmaceutical and biotechnology companies PSAI Segment Revenue (FY2024 vs FY2023) | Fiscal Year | Revenue (Rs. in millions) | YoY Change (%) | | :---------- | :------------------------ | :------------- | | 2024 | 29,801 | +3% | | 2023 | 29,069 | | - Revenue increase was largely due to new product launches and favorable currency exchange rates, partially offset by decreased sales volumes and prices of existing products[565] - The segment offers over 150 different APIs with regulatory approvals worldwide and provides contract discovery, development, and manufacturing (CDMO) services for new chemical entities (NCEs) and new biological entities (NBEs)[466][470] - As of March 31, 2024, the company had 1,537 active DMFs worldwide, including 251 in the United States, with 133 new DMFs filed in FY2024[468][566] - PSAI manufacturing infrastructure includes eight U.S. FDA-inspected plants (six in India, one in Mexico, one in UK) and two technology development centers[483] - The global API market is competitive, with the company competing against Indian (e.g., Divis, Aurobindo) and international manufacturers (e.g., Zhejiang Huahai, Teva)[493] - A GMP inspection at the API manufacturing facility (CTO-6) in Srikakulam, India, in June 2024 resulted in four observations, to which the company will respond by July 1, 2024[485] Others Segment The 'Others' segment comprises Aurigene Oncology Limited (AOL) for cancer therapeutics discovery, SVAAS Wellness Limited for digital healthcare services, and the Proprietary Products business focused on differentiated formulations, commercializing assets through partnerships and divestitures - Aurigene Oncology Limited (AOL) is a clinical-stage biotech company focused on discovering and developing novel cancer therapeutics, with 19 small molecule and peptide drug candidates in clinical development[501] - SVAAS Wellness Limited provides digital healthcare and IT-enabled business support services through web-based or mobile application platforms[502] - The Proprietary Products business focuses on research, development, and commercialization of differentiated formulations, monetizing assets through partnerships and divestitures in therapeutic areas like dermatology and central nervous system[503][504] 4.C. Organizational Structure Dr. Reddy's Laboratories Limited is the parent company, with its organizational structure detailed in Note 37 of the consolidated financial statements - Dr. Reddy's Laboratories Limited is the parent company, with its organizational structure detailed in Note 37 of the consolidated financial statements[505] 4.D. Property, Plant And Equipment The company's principal facilities include executive offices, research facilities, and production sites globally, with significant capital expenditures in FY2024 for enhancing manufacturing and R&D capacity, while being subject to environmental laws and regulations - Principal executive offices are in Hyderabad, Telangana, India, with global operations including research facilities and production sites[506] Principal Facilities by Location and Primary Segment Use | Sl No. | Name/Location | Approximate Area (Square feet) | Segments Which Primarily Use | | :----- | :----------------------------------------------- | :----------------------------- | :--------------------------- | | 1 | API Hyderabad Plant 1, Telangana, India | 729,630 | Global Generics and PSAI | | 5 | API Srikakulam Plant, Andhra Pradesh, India | 4,047,595 | Global Generics and PSAI | | 10 | Formulations Hyderabad Plant 2, Telangana, India | 3,207,826 | Global Generics | | 14 | Biologics Hyderabad, Telangana, India | 1,011,463 | Global Generics | | 24 | API Cuernavaca Plant, Mexico | 2,361,840 | Global Generics and PSAI | | 28 | Formulations Shreveport Plant, Louisiana, United States | 2,349,251 | Global Generics | Capital Expenditures (Net of Sales of Capital Assets) | Fiscal Year Ended March 31 | Amount (Rs. in millions) | | :------------------------- | :----------------------- | | 2024 | 26,350 | | 2023 | 18,784 | | 2022 | 15,733 | - As of March 31, 2024, capital commitments for expansion of manufacturing and research facilities totaled Rs.18,177 million, primarily in India and Mexico, to be funded by operating cash flows and other investments[513] - The company is subject to significant environmental laws and regulations, with non-compliance potentially leading to penalties or facility closures[514] ITEM 4A. UNRESOLVED STAFF COMMENTS This section states that there are no unresolved staff comments - There are no unresolved staff comments[515] ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS This section provides an overview of the company's financial performance, liquidity, capital resources, research and development activities, and key trends, detailing revenue and profit drivers, cash flow movements, debt obligations, and R&D expenditures, along with discussions on inflation and geopolitical conflicts Overview The company is an integrated global pharmaceutical company, deriving revenues from finished dosage forms, APIs, development/manufacturing services, and licensing, with performance evaluated by the CEO based on Global Generics, PSAI, and Others segments, highlighting critical accounting policies for revenue recognition - The company's reportable operating segments are Global Generics, Pharmaceutical Services and Active Ingredients (PSAI), and Others[517][518][519] - Revenue is derived from sales of goods, service income, and licensing arrangements, with most revenue from sales of goods[527] - Revenue recognition involves significant estimates for variable consideration, such as rebates, returns, and chargebacks, which are recognized only when highly probable that a significant reversal will not occur[530] 5.A. Operating results In FY2024, consolidated revenues increased by 14% to Rs.279,164 million, driven by sales volume, new product launches, and foreign exchange gains, with gross profit rising to 58.6% of revenues, R&D expenses increasing by 18%, and profit for the year growing by 23.6% to Rs.55,684 million, while the effective tax rate decreased to 23% Consolidated Income Statement Data (FY2024 vs FY2023) | Particulars | 2024 (Rs. in millions) | 2023 (Rs. in millions) | YoY Change (%) | | :---------------------------------------- | :--------------------- | :--------------------- | :------------- | | Revenues | 279,164 | 245,879 | 13.5% | | Cost of revenues | 115,557 | 106,536 | 8.5% | | Gross profit | 163,607 | 139,343 | 17.4% | | Selling, general and administrative expenses | 77,201 | 68,026 | 13.5% | | Research and development expenses | 22,873 | 19,381 | 18.0% | | Impairment of non-current assets, net | 3 | 699 | (99.6)% | | Other income, net | (4,199) | (5,907) | (28.9)% | | Results from operating activities | 67,729 | 57,144 | 18.5% | | Finance income, net | 3,994 | 2,853 | 40.0% | | Share of profit of equity accounted investees, net of tax | 147 | 370 | (60.3)% | | Profit before tax | 71,870 | 60,367 | 19.1% | | Tax expense, net | 16,186 | 15,300 | 5.8% | | Profit for the year | 55,684 | 45,067 | 23.6% | - Consolidated revenues increased by 14% in FY2024, driven by increased sales volumes, new product launches, and foreign exchange rate gains, partially offset by price erosion and divestment of non-core brands[550] Revenue by Geography (FY2024 vs FY2023) | Geography | 2024 (Rs. in millions) | % of Total Revenue | 2023 (Rs. in millions) | % of Total Revenue | | :-------------------------------------- | :--------------------- | :----------------- | :--------------------- | :----------------- | | North America (the United States and Canada) | 129,895 | 53% | 101,704 | 48% | | Europe | 20,511 | 8% | 17,603 | 8% | | India | 46,407 | 19% | 48,932 | 23% | | Russia | 22,301 | 9% | 21,228 | 10% | | Other countries of the former Soviet Union and Romania | 8,626 | 4% | 8,592 | 4% | | Others | 17,713 | 7% | 15,709 | 7% | - Gross profit margin increased to 58.6% in FY2024 (from 56.7% in FY2023) due to favorable product mix, productivity improvements, government incentives, and favorable foreign exchange rates[568] - Research and development expenses increased by 18% in FY2024, reaching 8.2% of total revenues, driven by higher development expenditures in Global Generics, biosimilars, PSAI, and novel oncology assets[571][572] - The consolidated tax rate decreased to 23% in FY2024 (from 25% in FY2023) primarily due to a lower corporate income tax rate in India and recognition of previously unrecognized deferred tax assets[579][580] 5.B. Liquidity And Capital Resources The company primarily finances operations through internal cash flows and borrowings, with principal needs for property, plant, and equipment, operations, and R&D, experiencing decreased net cash inflow from operating activities in FY2024 due to increased working capital requirements - Operations are primarily financed through cash flows and a mix of long-term and short-term borrowings[586] Summary of Cash Flows (FY2024 vs FY2023) | Cash Flow Category | 2024 (Rs. in millions) | 2023 (Rs. in millions) | YoY Change (Rs. in millions) | | :----------------------------- | :--------------------- | :--------------------- | :--------------------------- | | Operating activities | 45,433 | 58,875 | (13,442) | | Investing activities | (40,283) | (41,373) | 1,090 | | Financing activities | (3,763) | (26,861) | 23,098 | | Net increase/(decrease) in cash and cash equivalents | 1,387 | (9,359) | 10,746 | - Working capital as of March 31, 2024, was Rs.152,010 million, including cash and cash equivalents of Rs.7,107 million and other investments of Rs.74,363 million[598] Principal Debt Obligations (as of March 31, 2024) | Debt Category | Total (Rs. in millions) | Less than 1 year (Rs. in millions) | 1-5 years (Rs. in millions) | More than 5 years (Rs. in millions) | | :------------------ | :---------------------- | :--------------------------------- | :-------------------------- | :---------------------------------- | | Short-term borrowings | 12,723 | 12,723 | - | - | | Long-term borrowings | 3,800 | - | 3,800 | - | | Total obligations | 16,523 | 12,723 | 3,800 | - | - Material cash requirements in FY2024 included Rs.16,403 million for property, plant, and equipment and Rs.11,032 million for other intangible assets[607] 5.C. Research and development, patents and licenses, etc. The company's R&D activities are categorized across Global Generics (product formulations, biosimilars, differentiated formulations) and PSAI (API synthesis, pharmaceutical services), with expenditures increasing to Rs.22,873 million in FY2024, actively filing patents and trademarks globally to protect innovations and market products under various licenses Research and Development Expenditures | Fiscal Year Ended March 31 | Amount (Rs. in millions) | | :------------------------- | :----------------------- | | 2024 | 22,873 | | 2023 | 19,381 | | 2022 | 17,482 | - R&D activities are directed at product formulations, process validation, bioequivalence testing for Global Generics (including biosimilars and differentiated formulations) and chemical processes for API synthesis and pharmaceutical services for PSAI[615] - The company holds over 1,550 trademarks filed in India and markets several products under licenses in various countries[612] 5.D. Trend Information Key trends impacting the company include accelerated global inflation, leading to increased costs that cannot be easily passed on to customers, and ongoing military conflicts causing geopolitical instability and potential adverse impacts on operations and growth in affected regions - Accelerated global inflation is increasing costs of labor, raw materials, supplies, and freight, which the pharmaceutical industry's pricing dynamics generally do not allow to pass on to customers[613] - Geopolitical instability from military conflicts (e.g., Russia-Ukraine, Middle East) could adversely impact operations and growth in affected regions due to sanctions, restrictive measures, and economic instability[614] 5.E. Critical Accounting Estimates This section states that information regarding critical accounting estimates is not applicable - Information regarding critical accounting estimates is not applicable[617] ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES This section details the company's governance structure, including its Board of Directors and executive officers, their compensation, board practices, and employee information, highlighting the composition of the board, the roles of various committees, and the compensation philosophy for directors and executive officers, along with employee demographics 6.A. Directors And Senior Management The Board of Directors includes full-time and independent directors, with Mr. K. Satish Reddy as Chairman and Mr. G.V. Prasad as Co-Chairman and Managing Director, while recent changes include the retirement of Mr. Parag Agarwal as CFO and the elevation of Mr. M.V. Narasimham, and the resignation of Mr. Marc Kikuchi as CEO of North America Generics, with Mr. Milan Kalawadia taking over - As of March 31, 2024, the Board of Directors had eleven directors, with nine being non-full time independent directors[682] - Key leadership includes Mr. K. Satish Reddy (Chairman) and Mr. G.V. Prasad (Co-Chairman and Managing Director)[627][631] - Mr. Parag Agarwal will retire as CFO on July 31, 2024, and Mr. M.V. Narasimham will be elevated to CFO effective August 1, 2024[624][625] - Mr. Marc Kikuchi resigned as CEO of North America Generics effective May 24, 2024, and Mr. Milan Kalawadia was elevated to the role effective May 25, 2024[625][626] 6.B. Compensation Compensation for full-time directors includes salary, commission (up to 0.75% of net profit), and benefits, excluding stock options, while non-full time directors receive commission (up to 1% of net profits) but no attendance fees or stock options, and executive officers receive salary, perquisites, retirement benefits, stock options, and variable pay, with stock option schemes vesting over 1-5 years - Full-time directors (Chairman, Co-Chairman and Managing Director) receive salary, commission (up to 0.75% of net profit), and benefits, but are not eligible for stock option plans[666][667] - Non-full time directors receive a commission (up to 1% of net profits) but no attendance fees or stock options[668] Director Compensation (FY2024) | Name of Directors | Commission (Rs. in millions) | Salary (Rs. in millions) | Perquisites (Rs. in millions) | Total (Rs. in millions) | | :------------------ | :--------------------------- | :----------------------- | :---------------------------- | :---------------------- | | Mr. K. Satish Reddy | 90.00 | 22.02 | 4.15 | 116.16 | | Mr. G.V. Prasad | 160.00 | 22.02 | 4.26 | 186.27 | | Ms. Kalpana Morparia| 16.68 | - | - | 16.68 | - Executive officers receive salary, perquisites, retirement benefits, stock options, and variable pay, with stock options vesting over 1-5 years[673][675] Executive Officer Compensation and Stock Options Granted (FY2024) | Name | Compensation (Rs. in millions) | No. of options granted (Exercise Price Rs.4,907) | | :------------------ | :----------------------------- | :----------------------------------------------- | | Mr. Erez Israeli | 197.09 | 52,692 | | Mr. Parag Agarwal | 64.66 | - | | Mr. M.V. Ramana | 82.74 | 7,959 | | Mr. Marc Kikuchi | 53.48 | 11,927 | 6.C. Board Practices The Board of Directors, with a minimum of three and maximum of fifteen directors, includes a majority of independent directors, with full-time directors subject to re-election by rotation and independent directors serving terms of up to five consecutive years, operating through seven committees, each with specific charters and responsibilities - The Board has a minimum of three and a maximum of fifteen directors, with nine independent directors as of March 31, 2024[682] - Full-time directors are subject to re-election by rotation, while non-full time independent directors serve terms of up to five consecutive years[683][685] - The company has seven Board-level committees: Audit, Nomination, Governance and Compensation, Science, Technology and Operations, Risk Management, Stakeholders' Relationship, Sustainability and Corporate Social Responsibility, and Banking and Authorization Committee[690][692] - The Audit Committee, composed entirely of independent directors, supervises financial reporting, internal controls, and auditor independence, with Mr. Arun M. Kumar as Chairman[693][694][696] - The Risk Management Committee, chaired by Ms. Shikha Sharma, formulates risk management policies, oversees enterprise risk management, and reviews cybersecurity risks[703][705] 6.D. Employees As of March 31, 2024, Dr. Reddy's Laboratories had a total of 27,048 employees globally, an increase from 25,863 in 2023, with the majority in manufacturing and sales/marketing, primarily located in India, reporting good relationships with employees and labor unions Employee Count by Function and Geography (as of March 31, 2024) | Function | India | North America | Europe | Rest of World | Total | | :---------------------- | :----- | :------------ | :----- | :------------ | :------ | | Manufacturing | 10,070 | 222 | 129 | 401 | 10,822 | | Sales and marketing | 9,106 | 75 | 52 | 1,514 | 10,747 | | Research and development| 3,362 | 18 | 40 | 78 | 3,498 | | Others | 1,542 | 100 | 26 | 313 | 1,981 | | Total | 24,080 | 415 | 247| 2,306 | 27,048| - Total employee count increased from 25,863 in FY2023 to 27,048 in FY2024[711] - Approximately 1.7% of employees belonged to labor unions as of March 31, 2024, and the company reports good relationships with employees and unions[712] 6.E. Share Ownership This section details the share and stock option ownership of directors and executive officers, with Mr. K. Satish Reddy holding 901,002 equity shares and Mr. Erez Israeli holding 30,785 equity shares (underlying ADRs) as of March 31, 2024, and the company operating three employee stock option schemes with 248,198 options granted in FY2024, resulting in a total share-based payment expense of Rs.821 million Director and Executive Officer Share Ownership (as of March 31, 2024) | Name | No. of Shares Held | % of Capital | No. of Options Outstanding (Exercise Price Rs.4,907) | | :------------------ | :----------------- | :----------- | :--------------------------------------------------- | | Mr. K. Satish Reddy | 901,002 | 0.54 | - | | Mr. G.V. Prasad | - | - | - | | Mr. Erez Israeli | 30,785 | 0.01 | 52,692 | | Mr. M.V. Ramana | 26,197 | 0.01 | 7,959 | Stock Options Granted (FY2024) | Plan | Number of options granted | Exercise Price (Rs.) | | :------------ | :------------------------ | :------------------- | | DRL 2007 Plan | 81,009 | 4,907.00 | | DRL 2018 Plan | 157,799 | 4,907.00 | | Total | 248,198 | | Share-based Payment Expense | Fiscal Year | Equity settled (Rs. in millions) | Cash settled (Rs. in millions) | Total (Rs. in millions) | | :---------- | :------------------------------- | :----------------------------- | :---------------------- | | 2024 | 407 | 414 | 821 | | 2023 | 397 | 247 | 644 | | 2022 | 592 | 148 | 740 | 6.F. Disclosure Of A Registrant's Action To Recover Erroneously Awarded Compensation This section states that there are no events triggering restatement and recovery of compensation, and the company's clawback policy is included as an exhibit - There are no events triggering restatement and recovery of compensation[720] - The company's clawback policy is included as Exhibit 97 to this annual report[720] ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS This section details the company's major shareholders, including the promoter group and institutional investors, and outlines related party transactions, noting that there are no interests of experts and counsel applicable to this filing 7.A. Major Shareholders As of March 31, 2024, the promoter group beneficially owned 26.65% of equity shares, with APS Trust transferring its entire 20.59% stake to Mr. K. Satish Reddy and Mr. G.V. Prasad on May 22, 2024, while Life Insurance Corporation of India and Associates held 5.05%, and FIIs and FPIs collectively held 29.13% Beneficial Ownership of Shares (as of March 31, 2024) | Name | Number of Shares | Percentage of Shares | | :------------------------ | :--------------- | :------------------- | | APS Trust | 34,345,308 | 20.59% | | K. Satish Reddy HUF | 5,523,677 | 3.31% | | G.V. Prasad HUF | 2,543,418 | 1.52% | | Mr. K. Satish Reddy | 901,002 | 0.54% | | Family Members | 1,147,723 | 0.68% | | Subtotal promoter group | 44,461,128 | 26.65% | | Others/public float | 122,357,138 | 73.35% | | Total outstanding | 166,818,266 | 100.00% | - On May 22, 2024, the APS Trust transferred its entire 20.59% stake (34,345,308 equity shares) to Mr. K. Satish Reddy (9.07%) and Mr. G.V. Prasad (11.52%), with no change in total promoter shareholding[726][728] Shareholders Holding More Than 5% (as of March 31, 2024) | Name | No. of equity shares held | % of equity shares held | | :------------------------------------ | :------------------------ | :---------------------- | | APS Trust | 34,345,308 | 20.59% | | Life Insurance Corporation of India and Associates | 8,421,089 | 5.05% | - As of March 31, 2024, FIIs and FPIs collectively held 29.13% of equity shares, Foreign Nationals and Companies held 0.13%, and NRIs held 0.96%[782] 7.B. Related Party Transactions This section refers to Note 29 of the consolidated financial statements for details on related party transactions - Details on related party transactions are provided in Note 29 of the consolidated financial statements[731] 7.C. Interests Of Experts And Counsel This section states that information regarding the interests of experts and counsel is not applicable - Information regarding the interests of experts and counsel is not applicable[732] ITEM 8. FINANCIAL INFORMATION This section outlines the consolidated financial statements, export sales, legal proceedings, and dividend policy, confirming IFRS preparation and referring to specific notes for legal proceedings and significant changes 8.A. Consolidated Statements And Other Financial Information The consolidated financial statements, prepared in accordance with IFRS, are incorporated by reference from Item 18, with export sales constituting 83% of total revenues in FY2024, and a proposed dividend of Rs.40 per equity share for FY2024, subject to shareholder approval - Consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the IASB[734] Export Sales (FY2024) | Metric | Amount (Rs. in millions) | % of Total Revenues | | :------------ | :----------------------- | :------------------ | | Export Revenues | 230,691 | 83% | - Legal proceedings are detailed in Note 32 of the consolidated financial statements[736] Cash Dividends Paid per Equity Share | Fiscal Year Ended March 31 | Dividend per Share (Rs.) | | :------------------------- | :----------------------- | | 2024 | 40 | | 2023 | 30 | | 2022 | 25 | - A dividend of Rs.40 per share (aggregating Rs.6,673 million) was proposed for FY2024, subject to shareholder approval[737] 8.B. Significant Changes This section refers to Note 36 of the consolidated financial statements for details on significant changes, which typically include subsequent events - Significant changes are detailed in Note 36 ('Subsequent events') of the consolidated financial statements[739] ITEM 9. THE OFFER AND LISTING This section provides details on where the company's shares and ADSs are traded, noting that information on offer and listing details, plan of distribution, selling shareholders, dilution, and expenses of the issue are either covered elsewhere or not applicable 9.A. Offer And Listing Details This sub-section refers to Item 9.C. 'Markets' for offer and listing details and Exhibit 2.2 for a description of the securities - Offer and listing details are provided in Item 9.C. 'Markets' and Exhibit 2.2 ('Description of the Securities')[740] 9.B. Plan Of Distribution This sub-section states that information regarding the plan of distribution is not applicable - Information regarding the plan of distribution is not applicable[741] 9.C. Markets The company's equity shares are traded on the BSE and NSE in India, and its American