Most analysts expected Dr Reddy’s Laboratories Ltd’s US generics business to slow a bit in the September quarter.
A key drug, Sumatriptan, was to lose marketing exclusivity, meaning competitors would be allowed to sell the drug, too. That usually results in a sharp drop in prices, revenues and profit.
Despite this, the company’s performance beat estimates, with overall sales growing by 13.7% to Rs1,836 crore. Profit from operating activities grew by 44% to Rs254 crore, and aided by higher interest income, net profit more than doubled to Rs217 crore. The company’s global generics revenue grew by 14% during the quarter on a year-on-year basis, with US generic sales rising by 36%. This was partly aided by a strong dollar (growth was 23% in dollar terms).
The exclusivity of Sumatriptan, a migraine drug, ended in mid-August, so the company still benefited from it for about half the quarter. High volume growth and revenues from new products launched in the past 12 months also helped sales growth.
Among the company’s key markets, Europe suffered a decline due to a 21% drop in sales in Germany while business in India and Russia did well. Revenue from India grew by 13%, justifying the refocus on India by most large pharmaceutical companies.
Performance review: Dr Reddy’s revenue from India grew by 13%, justifying the refocus on India by most large pharmaceutical companies. Bharath Sai / Mint
In a conference call with analysts, the management said that a new government in Germany may bring in more changes in healthcare reform, causing more uncertainty. The rest of Europe did well, with revenue rising by 29%.
Overall, it seems like Dr Reddy’s has handled the end of Sumatriptan exclusivity quite well. Growth in core markets, with the exception of Germany, is quite strong.
Moreover, it has a big forthcoming launch in the form of omeprazole mg OTC, used to treat heartburn. According to the management, while this was scheduled for the second quarter, it was postponed because of facility readiness and equipment related issues.
While profit growth was impressive last quarter, this level of profit growth may not be sustainable. The September quarter results cheered investors and its share price rose by 6.2% on Friday to Rs960. At current levels, the share trades at 19 times estimated earnings for the current fiscal, which is lower than its earnings growth. Having said that, prospects of some negative surprises in Germany would act as a limiting factor on valuations.
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