Dr Reddy’s Laboratories Ltd's (DRL) Q4 revenue growth remained soft with growth in various geographies being a mixed bag
On the positive side domestic sales grew 23 % y-o-y
Dr Reddy’s Laboratories Ltd's (DRL) Q4 revenue growth remained soft with growth in various geographies being a mixed bag. The North American sales contributing 37% to overall earnings fell 3%. This nevertheless was on a large base of last year. Q4 FY20 had seen much higher volumes due to covid-19 related stocking.
The sequential growth of 1% despite new product launches, however, also failed to impress. The company attributed the same to price erosion. And, hence, the street will be watchful on the impact of price erosion moving forward too.
On the positive side, the company has a large range of products for the US markets. Cumulatively, 95 generic filings are pending for approval with the US drug regulator (USFDA). Out of the pending drug applications, 47 are Para IVs, and the company believe 23 have ‘First to File’ status (can get six months exclusivity on the launch). The company’s focus remains on limited competition, niche products in the US market and, hence, can see the growth rebound led by new launches.
The growth in the European sales however remained strong (up 32% year-on-year). This was primarily on account of volume traction in base business. The new product launches across markets including newer markets of France, Italy and Spain and favorable forex, helped.
Emerging Markets remains important growth drivers. These include sales from Russia and CIS countries that have remained important revenue contributors for DRL. Thus, a decline of 8% on sequential basis was a disappointment, even though the sales could grow 10% year-on-year (y-o-y).
The Europe and emerging markets contribute 17-18% each to overall. India, which contributed 18% to overall revenues, however remains in more focus looking at the covid-19 treatment portfolio. The company is benefiting from the sale of covid treatment drugs Remdesivir, Avigan® (Favipiravir), 2-deoxy-D-glucose (2-DG).
On the positive side domestic sales grew 23 % y-o-y. Company is also working on drugs as Molnupiravir and Baricitinib for covid treatment. The spotlight however remains on the launch of the Vaccine Sputnik V. The company announced the launch of the same on Friday and can reap benefits on growth looking at the high need for the vaccine. The company has priced the imported vaccine at ₹948 apiece. Analysts at Emkay Global Financial Services Ltd had expected ₹400 per share gains for DRL if the vaccine is priced at ₹750. Nevertheless, since there is the possibility of a lower price point when local supply of vaccine begins, the street will be watchful of the same.
Meanwhile, the India sales growth is to be aided by DRL’s strong chronic product range and acquired Wockhardt portfolio. Also, the company has been focusing on India and even China after changed focus on the US, where it is only looking at niche and limited competition products to drive growth.
As the company’s soft revenue growth of 9% y-o-y disappointed, however, the Ebitda growth of 13% y-o-y surpassing revenue growth was a key highlight.
Analysts said that the company’s Q4 results missed sales/earnings expectation mainly due to slippage in domestic/Russia/EU sales, but margin performance was decent. Analysts at Elara Securities India Pvt. Ltd said that “we see strong earnings visibility with covid-related opportunities in the near term and pickup in US generics business beyond FY22 along with continued cost optimization." The recent generic Revlimid settlement provides strong earnings visibility over FY23-25. However, analysts believe the Covid portfolio would positively surprise earnings in a big way till FY23.
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