Dr Reddy's net slips 16.8%, blames tardy growth in US market

Dr Reddy's Laboratories reported a 16.8 per cent decline in the net profit at Rs 574 crore in the quarter ended September, as compared to Rs 690 crore in the corresponding quarter last year.

This comes as peers such as Lupin reported impressive numbers for the same period.

The reason given for this is lower growth in income and the slowest growth in its most profitable US business in recent times.

Income from sales and services during the quarter grew by 6.9 per cent to Rs 3,588 crore as compared with Rs 3,357 crore in the year-ago period. Revenue from North America, the largest contributor to the category, rose only eight per cent, to a little over Rs 1,400 crore. From emerging markets and India, it grew 14 per cent each.

The overall growth in global generics was eight per cent for the period.

"Lack of new launches and price erosion in the US market were the main reasons for subdued growth in global generics revenues," said Abhijit Mukherjee, chief operating officer and head of global generics. The company's products, he said, had faced the harshest price erosion.

This was partly offset by an increase in market share in the US. However, some other factors such as depreciation of the Russian and Ukrainian currencies also had an adverse impact on the top line, said president and chief financial officer Saumen Chakraborty. Revenue from Russia declined 11 per cent to a little over Rs 400 crore, primarily on account of the rouble's devaluation, the company said.

Fewer new launches in the US was due to delays in approvals by the Food and Drug Adminstration (FDA). The second half of the current financial year could see a rise in the number but it would not be very different from the first half, said Mukherjee.

The gross profit margin in the second quarter was 58.5 per cent of the total revenue as compared to 54 per cent in the corresponding previous quarter. However, Ebitda (earnings before interest, taxes, depreciation and amortisation) margins declined to 24.3 per cent of total sales from 28.3 per cent in the year-ago period.

On the expenditure front, the cost of sales and services (Rs 1,489 crore) and selling, general and administration expenses (Rs 1,067 crore) rose 5.6 per cent and 9.6 per cent, respectively, over the same period last year. Spending on research & development rose 36.7 per cent to Rs 411 crore as compared to Rs 300 crore a year before.

On whether Dr Reddy's was looking at launching Nexium, as AstraZeneca's patent in the US ends over this heartburn drug, Mukherjee said they did not know the status of the exclusive rights given to Ranbaxy Laboratories by the US drug regulator.

For the first time in recent quarters, the pharmaceutical services and active ingredient division posted a growth in terms of both revenue and profit.

The share's price on the BSE fell on Wednesday by 1.9 per cent or Rs 57.70 over the previous day's close to Rs 3,022.95 in the afternoon trade, before recovering marginally to close at Rs 3,046.35.

The company announced it had entered into an asset purchase agreement with Novartis Consumer Health Inc to acquire the title and rights to the Habitrol franchise (an over the counter nicotine replacement therapy transdermal patch) and to market the product in the US.