Q3 Results: Rising Demand In Emerging Markets Lifts Dr. Reddy’s Profit

Dr. Reddy’s Laboratories Ltd.’s profit rose for the third straight quarter, beating estimates, on higher demand in emerging markets.

Net profit jumped 45.1 percent year-on-year to Rs 485.2 crore in the December-ended quarter, India’s third-largest drugmaker said in its exchange filing today. That compares with the Rs 380-crore consensus estimate of analysts tracked by Bloomberg.

Net sales rose 1 percent on an yearly basis to Rs 3,850 crore, in line with the Rs 3,878 crore forecast.

“We continued to improve our performance in the third quarter, supported by significant growth in emerging markets and India, pickup in new product launches and improvement in cost structure,” GV Prasad, co-chairman and chief executive officer of Dr. Reddy’s said.

Sales from emerging markets, including India, rose 31 percent year-on-year to Rs 774.4 crore during the three months ended December. Revenue from pharmaceutical services and active ingredients rose 6.6 percent to Rs 723.2 crore, while that from global generics increased 4 percent to Rs 3,134.7 crore.

The company’s earnings before interest, tax, depreciation and amortisation rose 6 percent to Rs 815 crore—the consensus estimate was Rs 754 crore. The operating margin expanded 90 basis points to 21.1 percent. That’s against estimated 19.4 percent.

While the top line number came slightly below the expectations, profit and Ebitda margin looked encouraging, Vineeta Sharma, head of research at Narnolia Financial Advisors, told BloombergQuint. Margin of any pharmaceutical company, Sharma said, is a very important metric for growth amid ongoing headwinds such as price erosion in the U.S.

Envision Capital’s Executive Chief Nilesh Shah, however, remained wary and said the drugmakers can “still go through a grind for at least another two-three quarters”. The headwinds still remain, Shah said. “I don’t think the biggest market—the U.S.—changed materially for a lot of pharma players.”

Shares of Dr. Reddy’s closed 2.3 percent higher after the results, compared with a 1.63 advance in the NSE Nifty Pharma Index.