Dr Reddy’s Q2 profit doubles on strong sales in US, Russia

Dr Reddy’s Q2 profit doubles on strong sales in US, Russia

Hyderabad: Strong sales in markets such as the US and Russia as well as foreign exchange gains helped Dr Reddy’s Laboratories Ltd, the country’s second-biggest drug maker by revenue, more than double its net profit for the second quarter.

The company sees a slower pace of growth in the third quarter but a rebound after that as it launches new drugs.

Revenue for the three months to end September climbed 14% over a year ago to Rs1,836.8 crore. Net profit surged 106% to Rs217.3 crore.

The results pumped up its stock. Dr Reddy’s shares rose 6.21% to close at Rs960.20 on the Bombay Stock Exchange on Friday, far outpacing the benchmark Sensex’s 27-point, or 0.13%, rise to end at 16,810.81.

Dr Reddy’s sales in the US grew 36%, in Russia and the Commonwealth of Independent States (CIS) by 26%, and in India by 13%, Satish Reddy, managing director and chief operating officer, said.

The strong sales in these regions offset a 13% fall in sales in Europe mainly on account of a challenging environment in Germany, which will likely continue for some more time, he added.

Overall, Dr Reddy’s global generics business rose 14% to Rs1,270.6 crore, and its pharmaceutical services and active ingredients unit by 11% to Rs537.5 crore.

Umang Vohra, Dr Reddy’s chief financial officer, said volume growth in sales came from key markets with attractive margins. “The US and Russia are two markets where the margins are very high. While the average margins in the US market are 50%-60%, the margins in Russia are far higher than that," he said.

Dr Reddy’s also benefited from foreign exchange gains of Rs44 crore, low amortization of about Rs30 crore and low interest costs of about Rs20 crore. “The total swing on these three heads itself amounted to a benefit of some Rs80-90 crore in the quarter," said Vohra.

Ajay Parmar, an analyst with Emkay Global Financial Services Ltd, said excluding these gains, Dr Reddy’s still recorded a healthy growth of 57% in quarterly profit.

Vohra, however, does not expect the third quarter to be as good. The high sales growth in the US was mainly because of issues with other drug makers and “there was a shortage of product availability in the market". Many of these issues have been sorted out and Dr Reddy’s cannot expect to have a similar advantage in the third quarter, he said.

Vohra was also skeptical about forex gains in the coming quarters. The average rupee-dollar exchange rate in the second quarter was Rs48 and in the third quarter the average rate is expected at Rs46-47, he said.

“Compared to average forex rate of Rs44 a dollar in (the) second quarter of last fiscal, the average forex rate was Rs48 a dollar in the latest quarter, which means a Rs4 gain on every dollar of sale we had. This won’t be there in the coming quarter," said Vohra. Commodity prices too were low in the latest quarter over a year ago, he added.

G.V. Prasad, vice-chairman and chief executive, agreed the firm may not see similar growth in the third quarter. “This is also because the base level in sales and profits in the third and fourth quarters of last fiscal were high on account of sales from (the) market exclusivity of Sumatriptan (anti migraine drug)," he said.

Vohra sees sales rebounding in the fourth quarter as the company launches new products. “We can see (the) launch of market exclusivity products such as Omeprazole in Q3 (third quarter), Allegra in Q4 (fourth quarter) of this fiscal and (a) few products in the first quarter of next fiscal," he said.