Dr Reddy's Q2 net drops 17% to Rs 574 crore

Income from sales and services grew by 7% at Rs 3,588 cr

Dr Reddy's Laboratories Limited has reported a 16.83% decline in net profit at Rs 574.10 crore in the quarter ended September 2014 as compared to Rs 690.25 crore in the corresponding quarter last year.

The copmany's  some what disappointing performance comes at a time when its peers such as Lupin reported impressive numbers for the same period, and this was attributable to not just the lower growth in income but also to the slowest growth in its most profitable American business.

Dr Reddy's income from sales and services during the quarter under review grew by 6.86% at Rs 3,587.81 crore as compared with Rs 3,357.45 crore in the year ago period. Revenues from North America, the largest contributor to the company's top-line rose just 8% to little over Rs 1,400 crore while the revenues from emerging markets and India grew by 14% each. The overall growth in global generics business was 8% for the period.

"Lack of new launches and the price erosion in the US market were the main reasons for subdued growth in the global generics revenues," Abhijit Mukherjee, chief operating officer and head of global generics said. The company products faced the harshest price erosion in this period, according to him.

While the price erosion was to certain extent was offset by the increase in market share in the US, the other factors like depreciation of Russian and Ukranian currencies also had adverse impact on the top-line, the company president and chief financial officer Saumen Chakraborty said. Revenues from Russia declined 11% to little over Rs 400 crore primarily on account of the Rouble devaluation, the company said.

Fewer new launches in the US was on account of the delays in the approvals by the US FDA and the second half of the current financial year could see a rise in number but not to the extent of being very different from the first half, according to Mukherjee.

The gross profit margin in the second quarter stood at 58.5% of the total revenues as compared to 54% in the corresponding previous quarter, the company maintained. On the expenditure front, the cost of sales and services (Rs 1,489.21 crore) and selling general and administration expenses(Rs 1067.33 crore) increased 5.58% and 9.61% respectively over the same period last year. But the spending on R&D rose by 36.7% to Rs 411.31 crore as compared to Rs 300 crore in the year ago period.

First time in the recent quarters the pharmaceutical services and active ingredient (PSI) division posted a growth in terms of both the revenues as well as the profits during the second quarter.

The company share price on Bombay Stock Exchange (BSE) fell 1.87% or Rs 57.70 over the previous day's close to hover at Rs 3,022.95 in the afternoon trade following the announcement of the results.

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