Dr Reddy's Q3 net down 7% at Rs 575 cr

Total income rises over 9%, operating margin at 18.8%

Dr Reddy’s Laboratories on Thursday reported a 7.1 per cent decline in consolidated net profit to Rs 574.5 crore for the quarter ended December on the back of higher operational costs and subdued revenue growth particularly in the most profitable US market. However, the decline was lesser than expected.

The Street was expecting Russia and CIS revenues to be impacted severely during the quarter due to Rouble depreciation and softer US sales. The impact, however, was much lesser.

Added to that was better performance by the Pharmaceutical Services and Active Ingredients segment, that marked a growth and rest of world sales that also grew a good 82.8 per cent year-on-year. Revenues at Rs 3,843.10 crore beat the consensus estimates of Rs 3,632.4 crore.

Earnings before interest, tax, depreciation and amortisation (EBITDA) at Rs 946 crore also came higher than Bloomberg consensus estimates of Rs 802.5 crore. Consequently, EBIDTA margins of 24.6 percent were better than expectations of 22.1 percent. Adjusted profits (for one-offs) at Rs 628 crore and reported profits of Rs 575.53 crore, both came better than street expectation of Rs 544.3 crore. The stock soured 1.5 percent to Rs 3,282 on Thursday.

The company's net profit in the year ago period was Rs 618.42 crore.

Dr Reddy's income from sales and services grew 8.75% to Rs 3,843.10 crore in the quarter under review from Rs 3,533.76 crore in the corresponding quarter previous year.

"The impairments amounting to almost Rs 100 crore as well as the depreciation of Rouble, which fell 30% during the quarter, had impacted the bottom line," Dr Reddy's chief financial officer Saumen Chakraborty said.

The company's chief operating officer Abhijit Mukherjee maintained that the the revenue growth in the US has been satisfactory as the growth is typically dependent on the number of new products launched in a particular period.

The company's gross profit margin has come down to 58.2% as compared to 60.5% in the same period previous year.

The stock exchanges responded positively to the results. Dr Reddy's scrip today closed 3.74% or Rs 120.10 higher at Rs 3,359.20 compared to the previous day's close on Bombay Stock Exchange.

The expenses across consumption of raw materials and R&D among other things have gone up during the period while the global generics, which contributes over 80% to the total revenues, has registered a growth of 4.14% in gross profits.

On the whole, revenues from global generics grew 8% primarily driven by branded markets, the company said.

In the global generics business, the company's revenues from North America grew just 4% at Rs 1,608 crore on a year-on-year basis while there was a 9% decline in revenues from Russia at Rs 400 crore primarily on account of Rouble depreciation, according to the company. Barring the setback in Russia, the revenues from emerging markets, went up by 16% at Rs 460 crore and in India it registered a 11% growth in revenues at Rs 430 crore during the quarter.

The company CFO said the moderate growth in the Indian revenues was due to shifting of some last minute invoices to the next quarter.

On PSAI front, Dr Reddy's performed well as revenues from this segment rose 22.21% to Rs 799.46 crore from Rs 654.18 crore in the year ago period. The gross profit from PSAI increased 32% to Rs 105.03 crore from Rs 79.51 crore in the corresponding quarter previous year.

The company attributed sustained performance in the US market to limited competition products namely Decitabine, Azacitidine and Divalproex sodium ER. Market share of key molecules namely ziprasidone, amlodipine-atorvastatin and sumatriptan auto injector also expanded. The company launched six new products in the US market during the quarter, according to the company press release.

Post the results, analysts remain positive on the company's prospects. While Hitesh Mahida at Antique Stock Broking has a target price of Rs 4,102, Sarabjit Kour Nangra of Angel Broking has a target price of Rs 3,935.