Dr Reddy’s Laboratories Ltd’s management had said, after the company’s June-quarter results disappointed investors, that the rest of the fiscal would be better. They have delivered on that assurance in the September quarter, and on Tuesday, its share gained 1.6%, compared with a 1.1% decline in the broad market.

Dr Reddy’s consolidated revenue rose 27% from the year earlier, while earnings before interest, taxes, depreciation and amortization (Ebitda) rose 50.2%.

Sales growth was below the 28.4% growth seen in the June quarter, but Ebitda grew faster than the 16.8% advance. Its margins improved by 4 percentage points, despite the company providing for impairment provisions of 69 crore.

The reason for better margins was the composition of growth. Its global generics business, which accounts for 70% of sales, saw 25% growth in sales. North America led the growth bandwagon, with a 47% increase in sales. This growth was attributed to new launches, and the full impact of products launched in the June quarter.

The company has a healthy pipeline of products for the US market, and expects to launch a few more niche ones in the current fiscal. That should continue to drive both sales and profitability growth.

Europe continues to be a problem area, which the company attributes to the business environment and price erosion.

Its business in Russia was affected due to a late winter, and it expects this to normalize in the second half.

Its India growth numbers at 12% were below expectations, as it had achieved a 19% growth in the previous quarter. The company asked analysts to focus on its half-year growth numbers. They may wait for growth to recover to healthier levels in the December quarter.

The PSAI (pharmaceutical services and active ingredients) business did quite well, growing 33% in the September quarter, compared with 14% in the June quarter, due to a better order pipeline.

It expects the growth momentum to continue, but instead of the quarter’s growth, the 25% growth figure achieved in the first half may be a better benchmark.

Dr Reddy’s appears to be in a good place, barring its European operations. Key factors to watch out for are currency related volatility, improvement in domestic sales growth levels and its ability to sustain US market growth despite price erosion in older products.

If it is on the right side of these factors, its performance in the second half should continue to impress investors.

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