Dr Reddys Lab trades weak ahead of Q1 results

The stock dipped 4% to Rs 3,465, extending its past two days 2% decline on the BSE.

Dr Reddys Laboratories extended losses to dip 4% to Rs 3,465 in an otherwise strong market ahead of its April-June quarter (Q1FY17) earnings on Tuesday, on July 26, 2016.

Since May 11, post January-March (Q4FY16) results, the stock had outperformed the market by surging 28% as compared to 9% rise in the S&P BSE Sensex till Wednesday, July 20, 2016.

According to Motilal Oswal Securities, Dr Reddys Laboratories is expected to report subdued numbers in Q1FY17, with flat revenue growth and profit after tax (PAT) at Rs 500 crore, down 20% year-on-year (YoY). US business is likely to remain flat, and Russia CIS region sales are expected to grow in single-digit due to currency devolution. However, India business would report decent growth in Q1 at 14% YoY.

Even though near-term earnings growth is muted due to recent warning letters, the brokerage firm believes the company is focusing on the right areas for growth in the US.

“We estimate US revenues to grow 9% QoQ led by increased market share gains in gNexium, owing to Hetero’s withdrawal. Nevertheless, increased generic competition in gValcyte to partially offset gNexium gains,” Emkay Global Financial Services said in a Q1FY17 results preview.

Higher R&D expenses related to site transfers coupled with higher litigation costs to weigh down margins sequentially. Additionally the company is likely to report lower PAT owing to continuation of US FDA remediation expenses (exceptional costs) through Q1FY17, added report.

Religare Institutional Research expect FY17 to be a muted year for Dr Reddy’s Laboratories given the high product concentration risk in the US, incremental competition, lack of Venezuela sales and a weak domestic business.

“We expect the growth momentum to pick up from FY18 onwards on a weak base and potential resolution of the warning letter on key facilities,” the brokerage firm said in a report dated July 15, 2016.

At 12:50 PM, the stock was down 3.6% at Rs 3,476, as compared to 0.48% rise in the benchmark index. A combined 350,729 shares changed hands on the counter on the BSE and NSE so far.