Here’s Analysts’ Take On Dr. Reddy’s Q2 Earnings

Dr Reddy's Laboratories Ltd.'s second-quarter profit more than doubled beating estimates on a one-time tax write-back and a licensing fee.

The drugmaker wrote back Rs 326-crore tax and received a licence fee worth Rs 723 crore for selling territory rights for two neurology brands to U.S.-based Upsher-Smith Laboratories.

While revenue grew in most geographies, it fell 13 percent sequentially in the North American market as competition-led price erosion continues and the company recalled heartburn drug Ranitidine. It also faced disruption in supplies in the region. Management maintained guidance citing cost controls and a global presence.

Here's what brokerages said about Dr. Reddy's second quarter earnings:

CLSA

• Sequential decline in U.S. sales despite new launches is a negative
• Improving traction in India and emerging markets.

Credit Suisse

• Normalised growth, excluding one-offs, was in line with estimates.
• High erosion in U.S. but anti-opioid Suboxone could present good opportunity and should more than compensate for Ranitidine impact.
• U.S. sales are low even after accounting for temporary supply disruption and Ranitidine recall.

Edelweiss

• Broad-based growth across geographies although U.S. was weak
• Lowers estimates due to lack of certainty on FY21 launch of generic versions of NuvaRing (contraceptive) and Copaxone (multiple sclerosis).

Goldman Sachs

• Operational challenges in the U.S. business to subside.
• Gross margins shy of internal aspirations due to unfavourable business mix.

JPMorgan

• Earnings below expectations, impacted by several one-offs.
• Bright spot was continued growth in ex-U.S. generics and pharmaceuticals services and active ingredients recovery.
• Improvement in reported profitability will be the key trigger for the stock.

Macquarie

• One-offs are increasingly becoming the norm; impairment was a negative.
• Strong launch pipeline and continued strength in non-U.S. markets reason to be upbeat
• Expect strategy of lowering concentration risk to bear fruit.

Prabhudas Lilladhar

• Problems continue in the U.S.
• A long list of launches to drive growth over price erosion.

UBS

• Issues around drug pipeline persist.
• Cost controls central to offset U.S. generic price erosion.