Workers at a Dr. Reddy’s manufacturing plant in Andhra Pradesh, India (Photographer: Amit Bhargava/Bloomberg News)

Q4 Results: Dr. Reddy’s Profit Declines For Fourth Straight Quarter

Dr. Reddy’s Laboratories Ltd.’s profit declined for the fourth straight quarter and fell short of analysts' estimates as the drugmaker continues to face pricing pressure in the U.S., it’s largest market.

Net profit stood at Rs 302.2 crore during the January-March period, a decline of 3.3 percent compared to the year-ago period, the pharmaceutical company said in an exchange filing. That’s lower than the Rs 379-crore consensus estimate of analysts tracked by Bloomberg.

Revenue fell 0.5 percent to Rs 3,534.9 crore, well below the consensus estimate of Rs 3,709 crore.

“Drug approvals and launches of essential products will be key triggers for growth,” Dr. Reddy's India President, Chief Financial Officer and Global Head of IT, Saumen Chakraborty told BloombergQuint in a post-earnings interaction.

Commenting on the price erosion in the U.S. markets, he said it is difficult to speculate that the worst is over for price erosion in the U.S. and that the company can only hope for stabilisation.

The operational performance was also below estimates. Earnings before interest, taxes, depreciation, and amortization fell 8.4 percent to Rs 577.7 crore, compared to the Rs 716-crore estimate. Operating margins contracted to 16.3 percent from 17.8 percent, while analysts had pegged it at 19.3 percent.

“The numbers were below our expectations and we knew that the weakness would continue mainly due to the pressure they are facing in the U.S. We expect the pricing pressure to continue but on a case-to-case basis,” Purvi Shah, research analyst at brokerage Sharekhan, told BloombergQuint in an interaction.

Segment-Wise Performance

  • Global generics revenue fell 4 percent to Rs 2,783.6 crore.
  • Pharmaceutical services and active ingredients revenue rose 16 percent year-on-year to Rs 625.1 crore.
  • Proprietary products rose 26 percent year-on-year to Rs 126.2 crore.

Geographic Revenue For Global Generics

  • North America fell 6 percent year-on-year to Rs 1,448.7 crore.
  • Revenue from European business, which primarily includes Germany and U.K, fell 17 percent year-on-year to Rs 171.1 crore.
  • Revenue from India rose 7 percent year-on-year to Rs 613.8 crore.
  • Emerging markets’ revenue fell 9 percent year-on-year to Rs 550 crore.

Chakraborty attributed the impact of North American sales to the increasing competition and currency strength. The Russian business witnessed a temporary drop while the European market was impacted due to the import alert. “The pharmaceutical company’s domestic business was impacted due to the Goods and Services Tax in the first quarter,” he said.

The company has a positive outlook for Indian and Russian markets and expects European market to stabilise going forward. “2018-19 will be good for the U.S. markets regarding launches,” Chakraborty said.

Shares of Dr. Reddy’s rose as much as 3.5 percent to Rs 1,960 apiece after the results were announced The stock had declined 13.8 percent between January and March, its highest quarterly decline in a year. That compares with a 3.9 percent decline in the country’s benchmark, the NSE Nifty 50 Index, during the period.

Watch the full interaction here:

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