Q2 Results: Dr. Reddy’s Profit Jumps More Than Twofold On One-Time Tax Gain

Dr. Reddy’s Laboratories Ltd.’s quarterly profit jumped more than twofold on the back of a one-time tax gain and higher licence fees from sale of brands.

Net profit rose 117 percent year-on-year to Rs 1,092 crore in the quarter ended September, according to an exchange filing. That compares with the Rs 556-crore consensus estimate of analysts tracked by Bloomberg.

The drugmaker’s profit was aided by a tax write-back of Rs 326 crore and a licence fee worth Rs 723 crore for selling territory rights for two neurology brands to U.S.-based Upsher-Smith Laboratories, the filing said.

“After adjusting these one-offs, I think the result is in line with street expectations,” said Kunal Dhamesha, research analyst at SBICAP Securities. “Also, Rs 723-crore fee is a one-off item but Dr. Reddy’s has six-seven products in their pipeline, so we can expect at least one deal per year of a similar magnitude.”

This comes at a time India’s pharmaceutical market grew at its fastest pace in more than a year in the quarter ended September as volumes and prices rose despite a fall in new launches. The domestic pharma market’s year-on-year growth in sales stood at 11.5 percent in the three-month period, the highest since at least the quarter ended June 2018, according to data released by AIOCD-AWACS—a pharmaceutical market research organisation.

Edelweiss had expected Dr. Reddy’s domestic revenue growth to outpace the industry, aided by the launch of biosimilar Avastin (used to treat a specific eye disease). Also, the company’s growth in the U.S. would be helped by five drug launches in the country, the brokerage said in a report prior to the earnings.

The drugmaker’s operating income, or earnings before interest, tax, depreciation and amortisation, rose 90 percent to Rs 1,408 crore during the second quarter. That’s higher than the Rs 929-crore estimated. Operating margin expanded nearly 10 percentage points to 29.3 percent.

Other Highlights:

• Sales in North America were flat year-on-year but fell 13 percent sequentially.
• Research & development expense dropped from 10.8 percent to 7.6 percent year-on-year.
• Impairment charge stood at Rs 355 crore.

Shares of Dr. Reddy’s pared the day’s losses and rose 1.6 percent after the earnings announcement. That compares with a flat Nifty 50 Index.