Dr Reddy's gains 6% post September quarter results

The stock gained 6.5% to Rs 2,559 after the company reported a good operational performance in September quarter, on account of lower R&D, higher other income, financial income, and lower tax.

Shares of Dr Reddy’s Laboratories have gained 6.5% to Rs 2,559 on the BSE in intra-day trade so far after the company reported a good operational performance in September quarter (Q2FY19), on account of lower R&D, higher other income, financial income, and lower tax.

Earnings before interest, tax, depreciation and amortization (Ebitda) margin of the drug maker improved by 340 bps at 22.8% in Q2FY19 from 19.4% in Q2FY18. In Q1FY19, Ebitda stood at 19.4%.

“The year-on-year (Y-o-Y) improvement in gross margin primarily aided by contribution from new launches, improved leverage, better product mix coupled with favorable foreign exchange. This was partially offset by higher price erosions due to increased competitive intensity in some of our key molecules in the US,” Dr Reddy’s Labs said in a statement.

The lower rate is primarily on account of profit mix and favourable resolutions of certain tax-related litigations pertaining to earlier years, it added.

The company reported 77% Y-o-Y jump in consolidated net profit at Rs 5.04 billion in Q2FY19. Revenues grew by 7% at Rs 37.98 billion over the previous year quarter.

“Dr. Reddy's Q2FY19 results were a mixed bag as the US disappointment was compensated by domestic business graduating to a higher plane (8% YoY despite a high base) and cost control measures slowly seeping into the financials. While continuing weakness in the US business can easily arrest or even reverse the operational improvements, we see this more as a short-term pain as the four launches in past couple of months (including gGleevec and gBloxiverz) will be complemented by 10+ launches for the remainder of the year and should help offset the loss in gToprol XL and gAloxi,” analyst at Antique Stock Broking said in a result update.

“FY20 should see US growth being driven by drugs like gNuvaring, gRozerem, gCopaxone, gSensipar and gZytiga (potentially late-FY19), among others. The only roadblock could be a delay in clearance of Duvvada and Srikakulam plants as queries may take longer-than-anticipated to resolve,” the brokerage firm said with maintains ‘buy’ rating on the stock and target price of Rs 2,950.

“Overall results were in line with our estimates with benefits of the weak INR captured in Q2 resulted in strong margins QoQ. Q2 also saw benefits from higher other operating income, which aided overall earnings and margins,” analysts at Emkay Global Financial Services said.

Dr. Reddy’s currently has about 80 active, commercialized ANDAs, with about 60 ANDA approvals dormant due to commercial reasons belonging to the past. Going forward, the company hopes to activate some of the ANDAs that are currently not commercialized. This should help drive some incremental revenue growth without any cost increase other than some variable costs; the brokerage firm said with maintains ‘accumulate’ rating and target price of Rs 2,865.

At 10:06 am; the stock was trading 5.7% higher at Rs 2,540 on the BSE, as compared to 0.55% rise in the S&P BSE Sensex. A combined 511,914 equity shares changed hands on the counter on the BSE and NSE so far.