US blues for Reddy's in Q1

Hyderabad-based pharmaceuticals major Dr Reddy's Laboratories registered a 30.54 per cent jump in net profit, but suffered a setback in sales, due to lack of major exclusive generic sales and rising competition leading to less margins in the US market.

The company reported a 30.54 per cent jump in net profit at Rs 182.5 crore for the first quarter ended June 2007, compared with Rs 139.8 crore in the corresponding quarter last year.

It recorded an 8 per cent increase in gross profit margins in spite of a 14.45 per cent dip in total revenues during the quarter, which stood at Rs 1,201.8 crore compared with Rs 1,404.9 crore in the corresponding previous quarter. Earnings per share (diluted) for the quarter stood at Rs 10.82 (Rs 9.07). 
 

Standalone June quarter results
Rs crore	2006	2007
Net sales	700.93	727.70
Other income	71.23	74.14
Expenditure	582.76	588.47
OP	189.42	213.37
Net profit	131.81	145.69
EPS (Rs)	17.19	8.68
Source: BSE

Dr Reddy's supplied authorised generic versions of two blockbuster drugs "" Zocor and Proscar "" in the US market in a tie-up with Merck during the first quarter last year, and competition impacted its margins in the recent period.

Dr Reddy's 180-day exclusivity in the US market for Zofran (GlaxoSmithKline Plc's nausea drug) ended in June this year and this also impacted the performance of the company, said company sources. Dr Reddy's ondansetron, the generic version of Zofran, could earn Rs 6.6 crore.

While the absence of authorised generics business, which the company had as an upside last year impacted the revenue figures, the same resulted in pushing up the margins largely as Dr Reddy's operated this one-time authorised generics business on thin margins.

As regards the rupee appreciation, the net impact during the quarter was neutral as the company hedged the dollar at Rs 43.5. "Though every percentage of increase in the rupee value impacted operating margins by 35-40 basis points, forex gains neutralised the effect," G V Prasad, vice-chairman and chief executive officer, said.

Though he cautioned that any further appreciation of the rupee would impact the company's margins in future. Excluding the upsides of authorised generics products from both the quarters, revenues during the quarter represent a 10 per cent growth "" 12 per cent if the effect of the rupee appreciation is excluded "" to Rs 1,180 crore from Rs 1,007 crore in the corresponding quarter previous year, said K Satish Reddy, managing director and chief operating officer of DRL. The company's business momentum was still intact, he added.

While revenues from international markets were down at Rs 940 crore (Rs 1,107 crore) during the first quarter, representing 78 per cent of its total revenues compared with 83 per cent in corresponding previous quarter, Indian revenues increased 16 per cent to Rs 200 crore during the same period.

Similarly, the company reported a 15 per cent increase in revenues from the branded formulations business, 13 per cent from active pharmaceutical ingredients (API) business, and 59 per cent from generics finished dosages in North America.

However, revenues from custom pharmaceuticals services declined to Rs 100 crore (Rs 140 crore) due to drop in revenues from Mexico resulting from supply shortage of a key raw material.

While admitting that the pricing in the UK was severely under pressure on account of increased competition, Prasad said, the top ten drugs currently being manufactured at its European facilities would be shifted to India while the rest would be given to contract manufacturers in Europe and India.

"Pricing has always been a problem in the pharma business as the competition continually builds up. We can address this issue only by introducing new drugs in the market," Prasad said. New drugs contributed 16 per cent to the revenues during the quarter.