Dr Reddy's extends fall on disappointing Q1; stock down 14% in 2 days

The stock of the pharmaceutical company was trading at its lowest level since April 9, 2021

Shares of Dr Reddy's Laboratories extended their decline into second straight day, falling 14 per cent in two days, after the company reported the disappointing results for the quarter ended June 2021 (Q1FY22). The stock hit a three-month low of Rs 4,667, down 4 per cent on the BSE in the intra-day trade on Wednesday, and was trading at its lowest level since April 9, 2021.

With the two days' decline, it has slipped 17 per cent from its 52-week high level of Rs 5,614, touched on July 7, 2021.

Dr Reddy’s reported a weak result on the margins front while revenues were in-line with analyst estimates supported by strong growth in domestic formulations (DF). Profitability, meanwhile, was impacted due to below par margins.

The company has reported a consolidated net profit of Rs 570.8 crore in Q1FY22, a 1.5 per cent dip on a year-on-year basis (YoY), while revenue from operations grew by 11.4 per cent to Rs 4,919.4 crore during the quarter.

Ebitda (earnings before interest, taxes, depreciation, and amortization) margins were down 560 basis points (bps) YoY and 310 bps sequentially at 20.7 per cent during the quarter. Gross profit margin decreased by 380 bps over the previous year and 150 bps sequentially, majorly on account of price erosion and increase in inventory provisions related to few products.

The management remains committed to working on cost rationalisation, especially on the SGN&A front and calibrating of R&D spend more towards Global Generics front & biosimilars and lower towards proprietary products. Key growth drivers in the near term would be key launches across geographies besides continuing growth momentum in Global Generics, especially in India and Russia, ICICI Securities said in a note.

However, in a separate development, Dr Reddy’s said it had received a subpoena (written order to attend court to give evidence) from the American market regulator Securities and Exchange Commission (SEC) for producing documents concerning the Commonwealth of Independent States (CIS) geographies.

“We await clarity on the further course of action post the receipt of a subpoena from the Securities and Exchange Commission (SEC) for the production of documents for allegations related to improper payments to healthcare professionals in Ukraine and certain other geographies. We believe the current valuation adequately factors in the upside in the base business and incremental contribution from niche launches. Hence, we remain Neutral,” Motilal Oswal Financial Services said said in a result update.