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Dr Reddy's Laboratories plunges 7% on disappointing Q4 margin

On the YoY basis, the company's gross margin declined by around 100 bps, primarily on account of price erosion, partially offset by new launches and favorable forex rates

SI Reporter  |  Mumbai 

Dr Reddy's

Shares of Dr Reddy’s Laboratories plunged 7 per cent to Rs 2,544 in intra-day trade on the in an otherwise strong market after the company reported disappointing margin in January-March quarter (Q4FY19).

The company’s gross margin for the was at 52.4 per cent. On the year-on-year (YoY) basis, the gross margin declined by around 100 basis points (bps), primarily on account of price erosion, partially offset by new launches and favorable forex rates. On QoQ basis, the gross margin declined by around 150 bps, primarily on account of adverse forex rate from Q3 to Q4, change in the business mix, higher manufacturing overheads due to certain one-off charges and overhead impact on inventory movement.

Ebitda (earnings before interest, tax, depreciation and amortization) margin was down 50 bps QoQ at 22 per cent, while it was up 570 bps on YoY basis.

Revenues grew 14 per cent to Rs 4,017 crore for the quarter under review while consolidated revenue rose 44 per cent at Rs 434 crore on YoY basis.

“The management has guided for normalized gross margin (53-56 per cent) in the coming quarters. With the help of gSuboxone, gNuvaring and several injectable launches, we are confident that Dr Reddy will achieve 23-24 per cent Ebitda margin in FY20/21E,” analysts at HDFC Securities said in results review.

With a sharp focus on cost optimization, weeding out of non-profitable businesses, largely clean regulatory slate, improving balance sheet and a major US revival, we remain constructive on Dr Reddy. We believe it will be the best performing pharma stock in FY20E. To our surprise, Dr Reddy is also catching up fast on biosimilar filings for developed (bNeulasta expected in 1HFY20). China ramp up remains another interesting opportunity, the brokerage firm said, with ‘buy’ rating on the stock.

“Dr Reddy’s has faced challenging times over the past two years on the revenue front, although it has done well to rein in cost. We believe it has a high-value ANDA pipeline; however, timing of approvals remains uncertain,” analysts at Elara Capital said in result update.

At 02:37 pm, Dr Reddy’s was up 6 per cent to Rs 2,580 on the BSE, as compared to a 3.3 per cent rise in the S&P The trading volumes on the counter jumped four-fold with a combined 2.45 million shares changing hands on the and so far.

First Published: Mon, May 20 2019. 14:40 IST
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