Dr Reddys Disappoints

Net profit has declined by 33.18 per cent to Rs 33.52 crore, while sales increased marginally by 13.43 per cent to Rs 249.93 crore.

The company attributes the steep fall in profits to the 83.55 per cent dip in other income to Rs 2.38 crore, and a one-time write-off of Rs 4.82 crore on account of investment losses.

Operating profit margin of the company has also declined from 20.44 per cent to 17.81 per cent in the previous year, as a result of the decline in the end prices of bulk drugs.

The increase in expenditure is because of a one time write-off of Rs 3.93 crore on account of loss on sale of investments, bad debts written off to the tune of Rs 7.86 lakh and Rs 81.03 lakh on depreciation on leased assets of standard equity fund.

Interest burden of the company increased by 44.21 per cent to Rs 8.48 crore.

Depreciation increased by 50.78 per cent to Rs 5.79 crore mainly because of the modernisation and upgradation at the plants.

The company, which was earlier a zero-tax payer, had a tax liability of Rs 1.50 crore this year. The company is now concentrating on the formulations segment.

Whereas the share of bulk drugs in the total product mix has declined from 50 per cent to 45 per cent, formulations increased from 48 per cent to 53 per cent.

However, the future of Dr Reddy's looks bright with the introduction of some new products as the three newly acquired brands are expected to lead the resurgence in sales growth.

Dr Reddy's would also benefit from the union budget due to reduction in corporate tax as well as exemption of tax on exports.

The stock, which was hovering around Rs 175 prior to the budget, has witnessed buying interest and has moved up to Rs 230.

Expecting the 1997-98 performance to be fairly good, the scrip may see some buying interest at lower levels. At the current price the scrip discounts around 18 times.