Healthy growth in India, US helps Dr Reddy's post strong Q2 performance

Wockhardt buy, Covid portfolio aid India business growth

Healthy growth in key markets helped Dr Reddy’s post strong operating performance in the September quarter. 

Though Q2 numbers were lower on a year-on-year basis, the corresponding quarter last year had seen one-off gains. The reported numbers, however, came in ahead of analyst expectations.

Improved traction in the US was evident from North America’s 28 per cent growth, led by new products launches, increase in volumes of existing products, and a favorable forex rate. 

Gains on account of higher sales were partially offset by price erosion. The US is the single largest geography for Dr Reddy’s, accounting for 37 per cent of revenues.  

India, its second biggest market (fifth of sales), too, posted robust 21 per cent growth. Though demand is yet to recover to pre-Covid levels, the acquired Wockhardt portfolio, contributions from Covid-related drugs (favipiravir and remdesivir), and a favourable season for its specialty portfolio were major positives. 

The company also remains in the spotlight after receiving the go-ahead for advanced trials of potential vaccine Sputnik V.

While European sales outperformed (36 per cent growth) as well, emerging markets were a mixed bag — given the unfavourable currency movement in markets such as Russia. 

The strong sales trend in the Pharmaceutical Services and Active Ingredients (PSAI) segment continued for the second straight quarter.  

Having changed its focus from the low-margin and loss-making proprietary products (PP) business, the company has divested and out-licensed many products.  

Q2FY20 had seen higher income from the sale of rights for the US and select territories, pertaining to two neurology franchise products. 

Consequently, sales of PP products in Q2FY21 were down 92 per cent year-on-year (YoY). 

This means the company’s Q2 revenues, operating profit, and net profit came in lower by 4-30 per cent, though they managed to beat analyst estimates. 

Traction in the US market remains strong, according to Bhavesh Gandhi of YES Securities, who remains positive on the stock. 

HSBC believes the company is making notable progress towards its goal of creating a well-diversified business model, with focus on the US, India, Russia (other emerging markets), PSAI, and global hospital segments, despite some short-term disruption.