 "Dr Reddy's Q2 net down 60% at Rs 308 cr as US generic sales plunge")
Dr Reddy's Laboratories reported a 59% decline in consolidated net profit at Rs 295 crore for the quarter ended September, 2016 as compared to Rs 721.8 crore in the corresponding quarter of the previous year due to weak operating performance. The company also created a provision of Rs 34.4 crore relating to drug price overcharge petition by the NPPA or National Pharmaceutical Pricing Authority. However, even after adjusting for the provision, net profit came lower than Bloomberg consensus estimate of Rs 347 crore.
The company's revenues fell 10% to Rs 3,585.7 crore in the quarter under review from Rs 3,988.9 crore in the year ago period, impacted by lower global generics sales from the US, Europe and Emerging markets comprising Russia, other CIS Romania and rest of the world.
The North American sales (primarily the US), which contributed 45% to Dr Reddy's overall revenue, declined 13% year-on-year pulling down the consolidated performance. Company attributed this to increased competition in valgancyclovir (anti-viral Valcyte generics) and injectable franchise, coupled with pricing pressure and moderation in volumes. However, some support was provided by newly launched products leading to a 4% sequential improvement in sales from the US.
Company’s sales from Europe (5% of revenue) were down by 16% and there was a 27% decline in revenue from the emerging markets, compared to the year ago period. Emerging markets contributed about 14% to overall revenue.
The only respite came from Domestic sales, which grew 14% year-on-year and were better than the Indian Pharma market growth of 12.6% seen during the quarter. Domestic sales account for about a sixth of overall revenues. But, clearly, it wasn't enough to offset sales decline in other geographies.
Gross profit margin for the quarter stood at 56%, a decline of 530 basis points compared to the corresponding previous quarter. The company attributed the fall in gross profit margin to lower sales due to increased competitive intensity in some of its key molecules in the US. The company’s earnings before interest, tax, depreciation and amortisation (Ebitda) for the quarter at Rs 642 crore also declined 44.6% from Rs 1,139 crore seen in the same quarter last year and came lower than Bloomberg consensus estimates of Rs 673 crore.
This was the third quarter of Dr Reddy's reporting a year-on-year decline in sales and net profit.
"All our major businesses have shown sequential improvement over the previous quarter with revenues growing by 11%, EBITDA by 61%. We have made considerable progress in our remediation efforts and continue to work on addressing the concerns of the regulators. Looking ahead, we will continue to focus on launching new products in our generics business, improving productivity and strengthening our quality management systems," Dr Reddy's co-chairman and CEO G V Prasad said.
While the performance is better compared to the June 2016 quarter, the previous quarter performance itself was poor wherein profit had fallen almost 80% year-on-year. So it remains to be seen how Dr Reddy's performs in the coming quarters.
Dr Reddy’s stock closed at Rs 3,200.45 levels, up 3.59% on Tuesday. The gains can be partly attributed to the near 20% decline it has seen from Rs 3,700 levels in July.
