Last updated: 28 Jul, 2021 | 07:34 pm
Profit falls sharply: Dr Reddy’s Laboratories has reported a 32% sequential decline in its Net Profits to Rs 380 crore for the April-June quarter against Rs 557 crore last quarter, below street estimates. The fall in the bottomline was mainly due to a one-time settlement pertaining to an international acquisition and higher spends on marketing and research. Analysts had estimated a profit of Rs 668.5 crore for Apr-Jun quarter. On a yearly basis the profits declined by 36% from Rs 595 crore last year.
Increase in Revenue: The revenue increased sequentially by 4% to Rs 4,945.1 crore compared to Rs 4758 crore last quarter. Company’s major revenue came from the North America market (35% contribution) which fell 1% due to price erosion in some products partially offset by volume traction and new products launched.Analysts had expected double-digit growth from the US sales. Revenue from the Indian market increased 26% sequentially from the sale of Covid-19 drugs and new launches and also aided by better traction in the chronic segment and the addition of the Wockhardt portfolio
Lower Operating Margins: Ebitda fell 30% sequentially to Rs 734.5 crore, against the estimated Rs 1,154.5 crore majorly on account of price erosion and increase in inventory provisions related to few products. Margins sequentially declined to 14.9% compared to 22.1% in the last quarter. Analysts had projected the margins at 22.6%.
Dr Reddy’s Laboratories Q1 results : Important highlights.
Increase in Marketing and Research cost: The marketing cost increased by 5% sequentially and stood at Rs 1,500 crore. The higher marketing cost was in line with the company's brand building, digitization initiatives and annual increments because of the integration of Wockhardt portfolio with it.The cost on research and development also increased by 0.5% sequentially to Rs 450 crore.
Anonymous Complaint:The anonymous complaint made against Dr Reddy’s Laboratories alleges that healthcare professionals in Ukraine and potentially in other countries were provided with improper payments by or on behalf of the Company in violation of U.S. anti-corruption laws, specifically the U.S. Foreign Corrupt Practices Act. The Company has disclosed the matter to the US Department of Justice, Securities and Exchange Commission ('SEC') and Securities Exchange Board of India, and on 6 July 2021 the Company received a subpoena from the SEC for the production of documents pertaining to certain ClS geographies, and the Company is in the process of responding to the same. While the matter may result in government enforcement actions against the Company in the United States and/or foreign jurisdictions, which could lead to civil and criminal sanctions under relevant laws, the probability of such action and the outcome are not reasonably ascertainable at this time according to the firm.
Dr Reddy’s Q1 Results Review:
Dr Reddy’s Laboratories has reported lacklustre numbers for the quarter ended June,due to a one-time settlement pertaining to an international acquisition and higher spends on marketing and research.The market condition for certain company products has witnessed significant changes in the last one year due to decrease in the market potential of products amid higher than expected price erosion, launches by competitors of a generic version of the products, increased competition, and higher than expected value erosion. Earnings per share also fell to Rs 22.95 from Rs 33.61 last quarter.
However, Dr. Reddy's management is confident that in the coming quarters the company will improve its margins. The company plans to scale up recent launches, launch new products, and increase productively. While the company continues to sharpen execution in its core business, they are also conducting pilots in areas such as Nutrition, Di tamer, and Digital Health & Wellness, which can be future growth drivers. Going forward the key triggers for the growth could be monetisation of generics of Kuvan (lower blood Phe levels) and Vascepa (reduce the risk of heart attack, stroke) in FY22, gRevlimid (cancer drug) launch in the U.S. in FY23, scale up in China, Sputnik V ramp up in India, improvement in core business and scaling up injectable production for U.S. launches in FY23.
Most analysts, including Jefferies, Morgan Stanley remain bullish on Dr. Reddy’s Laboratories Ltd., citing benefits from the launch of key generics of drugs and new products in the U.S. and EU. While the analysts maintained their bullish investment recommendation, they also remained cautious over the price erosion in the American markets, coupled with the company’s disclosure of an investigation into an anonymous complaint alleging an unfair practice in Ukraine that violates the U.S. anti-corruption laws.The share price of Dr. Reddy fit the lower circuit of 10% on Tuesday post result.The stock was trading at its lowest level since April 19, 2021.