Dr Reddy's falls for fourth straight day on poor Q3 results

The stock was trading 3.4% lower at Rs 2,233, down 13% in past four trading days from Rs 2,562 on January 24, as compared to 0.67% decline in the S&P BSE Sensex.

Dr Reddy’s Laboratories was trading lower for the fourth straight trading day, down 3.4% at Rs 2,233 on BSE after the company reported 29% year on year (YoY) decline in its consolidated net profit at Rs 3,344 million in December 2017 quarter (Q3FY18).

The net profit was impacted by a Rs 930 million charge on revaluation of deferred tax assets post the changing tax laws in the US.

Analysts on an average had expected profit of Rs 3,380 million for the quarter.

Revenues grew 3% at Rs 38,060 million against Rs 37,065 million in the corresponding quarter of previous fiscal. EBITDA (earnings before interest, tax, depreciation and amortization) margin stood at 21.2% in Q3FY18 against 23.7% in Q3FY17.

In past four trading days, post Q3FY18 results, the stock slipped 13% from Rs 2,562 on January 24, as compared to 0.67% decline in the S&P BSE Sensex.

Analysts at HDFC Securities maintain ‘neutral’ rating on the stock with a target price of Rs 2,400.

“While the improving regulatory scenario for Dr Reddy’s is encouraging, it has not yet translated into a revival in the US business and this is likely to remain the same until Duvvada is cleared. With the inspection still a quarter or two away, base business recovery is likely to be minimal. The increasing delay in the fructification of significant opportunities like gNuvaring, gSuboxone and gCopaxone heap further pressure on the existing portfolio,” the brokerage firm said in a results review.

“Dr Reddy’s earnings over the last year have been adversely impacted by competition in some key products, delay in approvals due to Warning Letter and remediation costs. We are seeing resolution of outstanding regulatory issues and stabilization in US revenue trend with signs of earnings improvement likely to be a key catalyst for the stock,” analysts at Morgan Stanley in a report with ‘overweight’ rating on the stock.

The brokerage firm expect a pick-up in launches over the next few quarters (not dependent on facilities under the Warning Letter) including some complex approvals in CY18.

Dr Reddy’s approval and filings for complex generics underline the company’s focus on transition to growth driven by its niche product portfolio in the US supporting medium-term growth, it added.