Dr Reddy's sees sharpest intra-day rally since Sept 2020; stock surges 8%

Shares of Dr Reddy’s Laboratories moved higher by 8 per cent to Rs 4,259 on the BSE in Friday’s trade. The stock gained 9 per cent in two days after the pharma company reported better-than-expected revenue growth in March quarter (Q4FY22). The board also recommended a final dividend of Rs 30 (600 per cent) per equity share of Rs 5 each for the financial year 2021-22.

The stock witnessed its sharpest rally in intra-day since September 2020. Earlier, on September 18, 2020, it zoomed 14 per cent in intra-day, and ended 10 per cent higher on the BSE.

The company’s revenue was up 15 per cent to Rs 5,437 crore for Q4FY22, primarily driven by market share gains, strong launches, productivity improvement and divestment of brand.

During this quarter, the company launched 3 new products – Vasopressin Injection, Nicotine Lozenges Cherry Flavour (OTC), and Clobetasol Shampoo in Canada and 17 products for the entire year.

However, the company posted 76 per cent year-on-year (YoY) dip in profit after tax (PAT) to Rs 88 crore in Q4FY22 due to pricing pressure in North America and Europe, lower export benefits, and increase in inventory provisions. Earnings before interest, taxes, depreciation, and amortization (EBITDA) margin stood at 23.9 per cent in Q4FY22, as compared to 23.8 per cent each in a year ago quarter.

Analysts at ICICI Securities believe that Russia and CIS performed well operationally despite geo-political challenges as Q4 saw uptick in stocking, thereby, the company remains adequately hedged for the medium term. "In US, Dr Reddy’s also guided for double digit price erosion, however due to 17 new launches in FY22, the impact was partially offset," the brokerage firm said.

The management guided double-digit growth for India and emerging markets despite only 4 per cent covid-19 contribution in revenues. However, the management also anticipates that margin pressure to remain in the medium term.

That said, analysts believe that the management remains committed to work on cost rationalisation, especially on the SGN&A front and calibrate R&D spend more towards global generics front and biosimilars.

"We remain positive on the stock due to its superior execution across key markets supported by the healthy pace of launches and market share gains in existing products. The controlled cost is likely to improve operating leverage and drive better profitability over the next 2-3 years," brokerage firm Motilal Oswal Financial Services said.

In the past one year, stock of Dr Reddy’s has underperformed market by 19 per cent, as compared to 9 per cent rise in the S&P BSE Sensex. While the stock had hit a record high of Rs 5,614 on July 7, 2021, it touched 52-week low of Rs 3,655 on March 4, 2022.