Dr Reddy's Laboratories Q2 Results: Profit Rises, Beats Estimates

Dr. Reddy’s Laboratories Ltd.'s profit rose 33% in the second quarter, beating analysts' estimates.

The drugmaker's net profit increased to Rs 1,482 crore in the July–September quarter, according to an exchange filing on Friday. That compares with the Rs 1,281 crore consensus estimate of analysts tracked by Bloomberg. Sequentially, the profit rose 5%.

• Revenue rose 9% to Rs 6,903 crore (Bloomberg estimate: Rs 6,844 crore).

• Ebitda up 6% to Rs 2,014 crore (Bloomberg estimate: Rs 1,915 crore).

• Ebitda margin at 29.2% versus 30% (Bloomberg estimate: 28%).

"We delivered another quarter of strong results with highest ever sales and profits, driven by market share gains and momentum in our U.S. generics business and robust growth in Europe," Managing Director GV Prasad said.

• Revenue from the mainstay North American market rose 13%, contributing 46% of the total sales. The growth was on account of growing momentum in the core portfolio, Mayne integration, and favourable moves from foreign exchange, which were partly offset by price erosion, the company said in the filing.

• Four new products were launched in the U.S. in the September quarter.

• European business rose 26%, accounting for 8% of the revenue.

• India's revenue was up 3%, contributing 17% to the total revenue for the quarter. "This growth was largely driven by pricing, new launches and partly offset by NLEM (inclusion of certain products in the National List of Essential Medicines results in a pricing cap) impact and muted demand due to a weak acute season. Excluding NLEM, operational sales grew in the mid-single digit," the filing said.

• Emerging-market sales declined 1%, making up 18% of the revenue for the quarter. Of this, Russia reported a year-on-year sales decline of 3%, primarily due to currency devaluation.

• The segment of pharmaceutical services and active ingredients grew 9%. It made up 10% of the total revenue.

• Expenditure on selling, administration and distribution rose 13% to Rs 1,880 crore.

• Research and development expenses stood at 7.9% of revenue.

• The company had a net cash surplus of Rs 5,910 crore as of Sept. 30.

MV Ramana, chief executive officer (branded markets), India and emerging markets, told BQ Prime that the company is maintaining its margin guidance of 25% for the long-term. This is despite the first two quarters reporting margin of 30.5% and 29.2%, respectively.

He said that "there may be fluctuations between the quarters". These fluctuations could be because the company would be using cash to create a future and is making investments in portfolio, biosimilars and Horizon two initiatives (pertaining to India).

Ramana said that the U.S. generics business is seeing a price erosion but they have seen relatively stable pricing in the second quarter. They are seeing stability and growth in their base business, he said.

The company aspires to launch 20-25 new products every year in the U.S. Of this, he said there are certain limited competition products.

In terms of the Bachupally facility that received nine U.S. FDA observations on pre-approval inspection for their first biosimilar product Rituximab, he said that the company is in the process of resolving the issues. However, he did not commit to a launch timeline.

They intend to leverage the products developed for the U.S. and sell it to the rest of the world, including Europe and emerging markets, he said.

Ramana attributed the low single-digit growth in the Indian pharma market to three reasons:

• A delayed acute season. He said that they are seeing a pickup in terms of volume in October.

• Reduction in the price of the cardiovascular drug, Cidmus.

• NLEM impact.

They are undertaking several innovative initiatives in India, which he said is expected to drive future growth.

They are looking at acquisition opportunities in the chronic space as well as for innovative assets where they can add value, Ramana said.

For China, the company is looking to participate in the new GPO programme, which is a volume-based drug procurement scheme. He also said that they are on track with drug filings and approvals in China.

Shares of Dr Reddy's closed almost at par on the BSE after the announcement of the results on Friday, as compared with a 1.01% rise in the benchmark Sensex.