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Home >Markets >Stock Markets >Why Dr Reddy's Lab shares hit 10% lower circuit today

Shares of Dr Reddy Laboratories' hit 10% lower circuit today after reporting a lower-than-expected quarterly earnings for Q1FY22 and US market regualtor SEC's subpoena of documents for CIS geographies. Dr Reddy's (DRL) shares plunged over 11% in Tuesday's afternoon deals, dragging down the Nifty Pharma index that fell over 4%. The stock closed 10.4% lower at 4,844 per share on the BSE.

The pharma major on Tuesday reported consolidated net profit of 570.8 crore for the quarter ended June 30, 2021 as compared 594.6 crore in the corresponding quarter of the previous fiscal. The revenue during the quarter came at 4,919 crore, up 11% as against 4,417.5 crore in the year-ago period. Gross margin was down by 380 basis points (bps) YoY at 52.2% as raw material prices have gone up in the last 2 quarters whereas EBITDA margin was down 560 bps.

''The company has commenced a detailed investigation into an anonymous complaint. The complaint alleges that healthcare professionals in Ukraine and potentially in other countries were provided with improper payments by or on behalf of the Company in violation of U.S. anti-corruption laws, specifically the U.S. Foreign Corrupt Practices Act. A U.S. law firm is conducting the investigation at the instruction of a committee of the Company's Board of Directors,'' DRL said in the exchange filing.

The company added that the investigation is ongoing and it has disclosed the matter to the U.S. Department of Justice, Securities and Exchange Commission ("SEC") and Securities Exchange Board of India.

Dr Reddy's further informed that it received a subpoena from the SEC for the production of documents pertaining to certain ClS (Commonwealth of Independent States) geographies, and the company is in the process of responding to the same.

''While the matter may result in government enforcement actions against the company in the United States and/or foreign jurisdictions, which could lead to civil and criminal sanctions under relevant laws, the probability of such action and the outcome are not reasonably ascertainable at this time,'' the company added.

Commenting on the results, DRL's Co-Chairman & MD, G V Prasad said "The financial performance of the quarter has been driven by healthy sales growth. I am confident about improving our margins in the upcoming quarters which will be led by the scale up of recent launches, new product launches and productivity.''

Avinash Gorakshkar of Profitmart Securities said that this fall in profit is mainly due to the bad business commentary in the US markets. “This fall in Dr Reddy’s Lab share price is mainly due to the fall in profit in recently ended June 2021 quarter. The market was expecting huge rise in its profit but the company has reported a fall which has come as huge disappointment for the market," Gorakshkar added.

Other pharma stocks like Aurobindo Pharma, Alembic Pharma, Sun Pharma also fell sharply in the range of 4-10% in Tuesday's session.

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