Dr. Reddy’s Profit Beats Estimate, U.S. Business Remains A Drag

Dr. Reddy’s Laboratories Ltd.’s quarterly profit declined as competition and pricing pressure continues in the U.S., a market that contributes more than a third of its sales.

Net profit fell 1.3 percent year-on-year to Rs 305 crore in the quarter ended September, said the company in an exchange filing. That’s higher than the Rs 285 crore consensus estimate of analysts tracked by Bloomberg.

Sales declined in the U.S. by 11 percent to Rs 1,430 crore. That pulled down its overall revenue by 1.6 percent to Rs 3,559 crore, missing the estimate of Rs 3,715 crore.

The drugmaker expects to see results from products launched in the U.S. in the first half of the financial year, G.V. Prasad, co-chairman and chief executive officer at Dr. Reddy’s Labs, said. “We shall continue to focus on launching new products, as well as on improving the operational efficiency and quality management systems across the company.”

Operating performance improved aided by lower overhead costs. Dr. Reddy’s earnings before interest, tax, depreciation and amortisation rose 6.5 percent to Rs 668 crore on a yearly basis. Operating margin expanded to 18.8 percent from 17.4 percent from a year ago period.

Segment Analysis

Revenue from the drugmaker’s global generics segment fell 1 percent to Rs 2,860 crore. Higher contribution from Europe, India and emerging markets offset the lag in the North American business.

• Emerging markets sales rose 14 percent to Rs 550 crore; Russian business grew 20 percent.
• Revenues from India increased 2 percent to Rs 640 crore as inventories recovered after the Goods and Services Tax rollout.
• Europe business surged 37 percent to Rs 240 crore, driven by new launches and volume uptick in key products.
• Pharmaceutical services and active ingredients segment reported a year-on-year decline of 2 percent to Rs 570 crore.

Other Highlights

• Selling, general and administrative expenses fell 6 percent year-on-year to Rs 1,100 crore.
• Research and development expenses as a percentage of total revenue contracted to 11.8 percent from 14.5 percent a year ago.
• Capital expenditure stood at Rs 280 crore in the last quarter.

Watch the full interview with Saumen Chakraborty, chief financial officer of Dr. Reddy’s on second quarter earnings.