Dr Reddy's profit down 85%

The company saw surge in selling, general and administrative expense surge 7% year-on-year

Dr Reddy's Laboratories has reported an 85.6 per cent fall in consolidated net profit to Rs 74.6 crore for the quarter ended March. The reasons include provisioning to write down receivables from Venezuela and increased tax expenses. The profit figure in the corresponding quarter a year before was Rs 518.8 crore. Bloomberg consensus estimates had pegged net profit at Rs 559.7 crore.

Revenue for the quarter fell nearly three per cent to Rs 3,756 crore and came lower than Bloomberg consensus estimate of Rs 3,995 crore . The company says there was a decline in global generics revenue from emerging markets and Europe, as well as a revenue fall in pharmaceutical services and active ingredients (PSAI) from all over.

The Venezuelan government had blocked repatriation of dollar revenues from there; Dr Reddy's management has shown the dues of Rs 264.6 crore as a finance expenditure. Similarly, the company had to provide for higher tax expenses at Rs 173.9 crore in the quarter, as compared to Rs 74.2 crore in the corresponding one a year before. However, adjusting for the one-off provision and tax rate, the profit was in line with company's guidance.

The company saw surge in selling, general and administrative expense surge seven per cent year-on-year. This included increased remediation costs too. Company’s three plants had received warning letters from US FDA in November 15 and updates on progress of remediation to the US FDA have been provided in January and March 2016.

“It’s been a challenging quarter. While there has been a marginal decline in revenues, there has been a greater impact on profitability,” said G V Prasad, co-chairman and chief executive.

“This is mainly due to the provision, made as a matter of abundant precaution, to write down our receivables from Venezuela. We will continue to actively engage with their government.”

He said their biosimilars business was gaining. “Our priority continues to be the strengthening of our quality management processes,” he added.

For the full year ended March, consolidated net profit declined 9.8 per cent to Rs 2,001 crore. However, revenue grew 4.4 per cent to Rs 15,471 crore.

The gross profit margin at 59.6 per cent improved by 200 basis points over the previous year. That for the global generics and PSAI segments was 65.9 per cent and 22 per cent, respectively. Revenues from global generics in 2015-16 was Rs 12,801 crore, an year-on-year growth of seven per cent, primarily driven by North America, Europe and India.

On the US FDA for reinspection of three sites of the firm, CEO G V Prasad on Thursday said, “We’ve completed 50 per cent of the remedial work. We’ll take few more months to complete the entire exercise and then we will approach the regulator for inspection.”

“Though we don’t give any guidance, we expect an uptick happening in our revenues towards the second half of the current financial year as there were a number of important products lined up for nod. But it all depends on the approvals.”