PSAI segment decline pulls down Dr Reddy's Q1 show

Earnings were driven by one-off gains

Dr Reddy’s below than expected performance for the June quarter was led by a temporary disruption in the manufacturing of the active ingredient. Pharmaceutical services and Active Ingredients (PSAI) segment reported a 10 per cent decline in sales on a year-on-year basis and 33 per cent sequentially. The management, however, said that segments sales would normalize in the September quarter.

Global Generics sales grew 8 per cent year-on-year and 9 per cent sequentially. India and Emerging markets contributed well to the growth momentum. The North American sales (43 per cent of overall) though grew three percent year-on-year however was on a large base too. Nevertheless, the 9 per cent sequential improvement was impressive, said analysts. 

The company is also streamlining its product portfolio to focus only on limited competition and niche products. It had sold some proprietary products recently and will continue getting royalties. During the quarter, the company launched five new products (antibiotics Daptomycin and Tobramycin, Vitamin K & OTC calcium carbonate along with hormone Testosterone gel) and re-launched acne treatment lsotretinoin during the quarter.

The company is also concentrating its efforts on domestic sales and a strong 15 per cent year-on-year growth (higher than Industry growth) is impressive. This was driven by volume traction and improved realizations in base business and new product launches. While India contributed about 18 per cent to overall, Emerging markets (fifth of overall) too reported a strong 10 per cent growth.

The company's revenues at Rs 3843.5 crore though up 3 per cent year-on-year came lower than consensus analysts estimates of Rs 4004 crore as indicated by Bloomberg. The company’s earnings were driven by oncology products Revlimid settlement income of Rs 345 crore.

 The company continues to impress with improved free cash flows and sequential improvement in profitability, say analysts. Approval for key products will act as a catalyst, they added.