Dr. Reddy’s Q3 Results: Impairment Charges Lead To Less-Than-Expected Profit

Dr. Reddy’s Laboratories Ltd. posted a less-than-expected profit in the quarter ended December as impairment charges offset a rise in sales in key markets.

Net profit stood at Rs 19.8 crore compared with a net loss of Rs 570 crore a year ago, according to an exchange filing. A consensus estimate of analysts tracked by Bloomberg had pegged it at Rs 709.3 crore.

The company reported an impairment charge of Rs 600 crore in the third quarter.

“The profits were impacted due to a trigger-based impairment charge taken on a few acquired products, including gNuvaring,” GV Prasad, co-chairman and managing director at the drugmaker, was quoted as saying in the filing.

In January 2021, there has been an additional generic launch for Nuvaring (a female contraceptive), which has led to a considerable erosion in the value of this product, and accordingly, the company has taken an impairment charge of Rs 320 crore, the filing said. “In addition to this, considering the current market dynamics, we have taken an additional impairment charge of Rs 280 crore on the intangibles pertaining to other products.”

Other highlights (year-on-year)

• Revenue rose 12% to Rs 4,941.9 crore—against the Rs 4,985-crore forecast.
• Operating profit rose 10% to Rs 1,185.1 crore
• Margin contracted to 24% from 24.4%.

Dr. Reddy’s sales in the Indian market rose 26% year-on-year to Rs 960 crore in the reported quarter. It contributed 19% to the overall revenue for the quarter.

• Revenue from North America, its largest market, also rose 9% to Rs 1,740 crore. The North America business contributed 35% to the company's overall revenue.
• Revenue from the European business grew 34% year-on-year to Rs 410 crore, driven by new product launches, favourable forex movement and volume traction. The growth was partly offset by price erosion.

Covid-19 Vaccine

Dr. Reddy’s on Jan. 11 said the Data and Safety Monitoring Board had reviewed safety data for phase 2 of clinical trials of the Sputnik V vaccine and recommended for recruitment and clinical trials without any modification for phase 3.

Phase 2 study was conducted on 100 subjects in India. Dr. Reddy’s received approval from the Drugs Control General of India on Jan. 18 to conduct phase 3 trials. The study will be carried out on 1,500 participants in India, the company said.

“We are progressing well on phase 3 clinical trials for Sputnik V vaccine in India. We continue to focus on enhancing our product offerings to our patients to serve them better,” Prasad said.

Shares of Dr Reddy's Laboratories fell as much as 4.4% to Rs 4,655. The stock is trading at the lowest level since September 17, 2020. Dr Reddy’s was the fifth-worst performer on the Nifty 50 in the quarter ended December. Its shares had gained 0.3% during the period compared with the benchmark’s 24.3% rally.