Dr Reddy's Q4 PAT may rise 28% YoY; margins likely to fall, say analysts

Hyderabad-based drugmaker Dr Reddy’s Laboratories is set to announce results for the fourth quarter of FY22 (Q4FY22) on Thursday, May 19. Analysts expect the company to post revenue growth of 8-16 per cent in Q4FY22 on the back of decent sales across all geographies and a ramp-up in volumes of its Vascepa generic in the US.

The company’s net profit is expected to rise 28 per cent year-on-year (YoY), as per an average of estimates by four brokerages.
 

However, on a quarterly basis, it may register a decline in net profits due to cost pressures that may have also likely impacted profitability margins, analysts said.

Moreover, the pharmaceutical giant may witness some impact due to its large exposure of the business to Russia, and CIS regions. The company has the highest export exposure (around 12 per cent of total sales) to these regions, among domestic drugmakers.

The company’s operating margins could contract by 100 bps points from the last year, as per an average of three estimates. This would be due to elevated raw-material and logistics costs amid lockdowns in China and the Russia-Ukraine crisis.

Key monitorable: Management commentary on Russia/Ukraine exposure and current status of the region’s business, US product pipeline such as vasopressin injection, and scale-up in sales of complex products like Vascepa and Revlimid are key factors that will be watched out.

Here are top brokerage views on the company’s Q4 performance :  

Ambit Capital: The brokerage expects an 8 per cent YoY revenue growth on steady sales from all markets. It estimates the company’s EBITDA margins to contract 62 bps YoY to 22.4 per cent. The ramp-up in sales of generic Vascepa and subsequent market share gains have been key drivers for the company, it said.

Motilal Oswal: Analysts project a 17 per cent YoY sales growth for Dr Reddy’s in Q4 driven by new launches and market share gains in complex products (including Vascepa). It expects the firm’s US sales to have grown 15 per cent YoY to $270 million, and domestic revenue by 35 per cent on better traction in the chronic therapy segment post-Covid and low base of last year.

Sharekhan: Topline growth is likely to have been driven by a double-digit growth in domestic sales followed by high single-digit growth in US sales despite pricing pressures, the brokerage said. It has foreseen a 192 bps YoY contraction in operating margins to 20 per cent due to cost woes and pricing pressures in the US.

B&K Securities: US sales are likely to have remained steady at around $ 255 million due to the ramp-up of Vascepa. The company’s new drug approvals in the US remained healthy. Another positive has been the FDA clearance for the Duvvada-injectable unit. Russia/CIS business is likely to have seen some impact on account of the Ukraine invasion, the brokerage said.

Nirmal Bang: The brokerage has estimated a 10 per cent and 16 per cent yearly rise in revenue and net profit, respectively, for the quarter. An increase in the prescription volume of Vascepa should have offset the fall in the volumes of generic Ciprodex. The company should also have been affected by the depreciation of the Russian Ruble, it said