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Dr Reddy’s profit hurt by German unit, shares fall

Dr Reddy’s profit hurt by German unit, shares fall
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First Published: Tue, Jan 25 2011. 05 23 PM IST
Updated: Tue, Jan 25 2011. 05 23 PM IST
Bangalore: Dr Reddy’s Laboratories, India’s No. 2 drugmaker, swung to a profit in the third quarter but missed analysts’ estimates as sales at its German unit plunged, pushing its shares down nearly 4%.
Sales in Europe, one of Dr Reddy’s largest markets, fell 18%, driven by a 33% drop in Germany, as its German unit Betapharm struggled with pricing pressure amid intense competition.
Slower sales in Russia and other countries in Eastern Europe also hurt results in the third quarter.
The company, also listed in New York, reported a net profit of Rs273 crore ($60 million) in the fiscal third quarter ended December, compared with a loss of Rs522 crore a year earlier.
“The results are not encouraging. A major worry is the decline in sales in Germany,” said Ranjit Kapadia, vice president institutional research, HDFC Securities.
Overall revenue at the company rose 10% to Rs1899 crore, driven by sales in North America, which account for about a third of the company’s revenue and grew 60%.
Global demand for generic drugs from drugmakers such as Dr Reddy’s and domestic rivals Ranbaxy Laboratories, Cipla Ltd and Sun Pharmaceutical Industries is booming as developed nations battle rising healthcare costs.
Shares in Dr Reddy’s, valued at nearly $6 billion, fell nearly 4% in Tuesday trade on the Bombay Stock Exchange, their biggest fall in nearly a month. The stock closed at Rs1,584.10.
The stock had risen more than 15% in the fiscal third quarter, topping the 12% rise in the sector index and the main index’s 2.2% gain in the period.
Germany Under Pressure
Germany, one of the largest generics market in the world, has transitioned from branded generics to commodity generics—or even cheaper copycat drugs—increasing pricing pressure on branded generic players.
Dr Reddy’s German unit Betapharm, which it bought in 2006 for $572 million, has been a drag on its earnings due to regulatory issues. Dr Reddy’s has been trying to turn around the unit, on which it took a hefty write-off last fiscal year, resulting in the loss in the year ago quarter.
Dr Reddy’s chief executive G.V. Prasad said on Tuesday the outlook for Germany was still uncertain.
Earlier this month, smaller rival Biocon said its German unit AxiCorp was under pressure after the German government asked drugmakers to provide a 16% rebate over the next three years.
A Reuters poll of brokerages had estimated quarterly profit of Rs300 crore for Dr Reddy’s on revenue of Rs1972 crore.
Dr Reddy’s also said it had settled patent litigations with AstraZeneca on two drugs.
Under the deals with AstraZeneca, the Indian drugmaker can sell generic versions of heartburn and stomach ulcer medicine Nexium, on 14 May, 2014 or earlier under certain circumstances.
The deal on asthma drug Accolate ends all litigation and allows Dr Reddy’s to continue selling the medicine.
Battling stalling sales in Western markets, global drugmakers are looking to boost their presence in emerging markets such as India through partnerships and acquisitions.
Last year, Abbott Laboratories Inc paid a hefty $3.72 billion to acquire the branded generics business of India’s Piramal Healthcare.
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First Published: Tue, Jan 25 2011. 05 23 PM IST