 "Dr Reddy's Labs Q2 Preview: Profits may decline 7%, revenues to rise 12%")
Dr Reddy's Labs Q2 Preview: Indian pharmaceutical major Dr Reddy’s Laboratories is scheduled to post its financial results for the second quarter (July-September) of fiscal year 2024-25 (Q2FY25) on Tuesday, November 5.
Analysts expect Dr Reddy's Lab to report a single digit fall in profits with a double digit revenue growth. They anticipate slowness in the North American market driven by flat volumes across most molecules.
According to brokerages tracked by Business Standard, Dr Reddy's Lab is expected to report an average net profit Rs 1,384 crore in Q2FY25, a decline of 7 per cent year-on-year (Y-o-Y) against Rs 1,487 crore in Q2FY24. Meanwhile profits may stay flat or decrease by 0.5 per cent quarter-on -quarter, compared with a profit after tax (PAT) of Rs 1,392 in the June quarter of FY25.
Dr Reddy's Lab’s average revenue will potentially increase 12 per cent Y-o-Y to Rs 7,734 crore as against Rs 6,902 crore in Q2FY24. On a quarterly basis, the revenues may rise by 0.4 per cent. The pharma company registered revenues of Rs 7,696 crore in the June quarter of FY25.
Moreover, here’s what key brokerages expect from Dr Reddy's Lab Q2 results:
Kotak Institutional Equities: KIE analysts project that North America base business sales (excluding Revlimid) will decline by 2 per cent quarter-on-quarter (Q-o-Q) to approximately $330 million, due to flat volumes across most molecules. They estimate Revlimid sales for Dr Reddy’s in the US at around $130 million for Q2 FY25, up from US$125 million in Q1 FY25, and anticipate $29 million from the Mayne portfolio.
Domestic sales are expected to grow by 14 per cent year-on-year in Q2FY25, driven by an 8 per cent growth in the organic business and contributions from in-licensing deals with Sanofi and Bayer. In Europe and Russia, growth is projected at 6 per cent and 2 per cent year-on-year, respectively. The ROW and PSAI segments are expected to see growth of 12 per cent and 16 per cent year-on-year (Y-o-Y), respectively. Overall, DRRD's sales are anticipated to grow by 14 per cent Y-o-Y (+2 per cent Q-o-Q) in Q2 FY25.
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KIE analysts incorporate an 80 basis points Q-o-Q decline in gross margin to 70.9 per cent (flat year-on-year) in Q2 FY25, attributed to slightly lower US sales and a higher acute mix in India. They expect consolidated Ebitda to grow by 10 per cent year-on-year (+4 per cent quarter-on-quarter) to Rs22.2 billion, with the Ebitda margin expanding by 60 basis points quarter-on-quarter (-90 basis points year-on-year) to 28.3 per cent.
HDFC Securities: HDFC Securities projects that the US business will experience a quarter-on-quarter decline due to lower Revlimid sales, with the base business expected to remain steady at around $285-290 million. In India, a 13 per cent year-on-year growth is anticipated, driven by incremental sales from the acquired vaccine business from Sanofi. While gross margin is expected to remain steady, the Ebitda margin is projected to decline due to higher R&D expenses and investments for horizon 2 initiatives.
Nuvama Institutional Equities: Nuvama analysts expect Dr. Reddy's revenue and Ebitda to grow by 10 per cent and 9 per cent year-on-year, respectively, with Ebitda margins at 28.8 per cent for Q2FY25. They project US revenue at $419 million, driven by strong contributions from Revlimid. The India business is anticipated to grow by 19 per cent year-on-year, fueled by an 11 per cent organic growth and approximately Rs 1 billion from the vaccine business. Emerging markets (EM) and PSAI businesses are expected to grow by 5 per cent and 8 per cent year-on-year, respectively.
PhillipCapital: PhillipCapital estimates a 13 per cent growth in revenue, driven by steady growth in US base business sales and strong Revlimid contributions (approximately $160 million compared to $130 million last year). They project a 15 per cent growth in India, supported by the in-licensing of Sanofi's vaccine portfolio and a joint venture with Nestlé Healthcare.
Margins are expected to correct by 300 basis points Y-o-Y, primarily due to higher R&D expenditures and increased overheads, despite the rising contribution from Revlimid, leading to muted Ebitda performance. Consequently, due to higher operating expenses and R&D spending, the resultant PAT is expected to decline by 4 per cent Y-o-Y.
Axis Securities: Axis Securities anticipates US base business sales of US$330 million and Revlimid sales of $125 million. They expect US sales to remain on the lower side quarter-on-quarter due to elevated price erosion, with stable Revlimid sales factored in. Commentary on trends in the US base business and margins will be key areas of focus.