Dr. Reddy’s Q1 Results: Profit Beats Estimates As Non-Operating Income Jumps

Dr. Reddy’s Laboratories Ltd.’s first quarter after-tax profit surged, beating estimates on account of high other non-operating income.

The Hyderabad-based drugmaker’s net profit stood at Rs 1,189 crore in the three months ended June, up 2.1 times over the previous year, according to its exchange filing. That compares with the Rs 699-crore consensus estimate of analysts tracked by Bloomberg.

The non-operating other income stood at Rs 854 crore, up 6.9 times over the previous year.

"The other income jumped on account of brand divestments—sales of two branded portfolios, favourable settlement of litigation in the U.S., and forex gains due to favourable Ruble," MV Ramana, executive vice president and head of the branded formulations business at Dr. Reddy's, told BQ Prime.

Dr. Reddy’s Q1 FY23 Highlights (YoY)

• Revenue rose 6% to Rs 5,233 crore, compared with the Rs 5,389-crore estimate.

• Ebitda was up 2.5% at Rs 941 crore against the Rs 1,116-crore forecast.

• Margin was at 18% against 18.6% a year ago and an estimate of 20.7%.

"The profits were aided by a few non-recurring incomes, offsetting the near term headwinds," GV Prasad, co-chairman and managing director at Dr. Reddy’s, said in the exchange filing. "We continue to improve the health of our core businesses through productivity improvement and robust product pipelines."

The drugmaker is working towards growth in branded markets, i.e. India and emerging markets, Ramana told BQ Prime. The pharma company is on track with new product launches that would push growth in the U.S. and European markets.

Dr. Reddy's aim is to grow organically by building big brands in both generic and over-the-counter medicines, he said. The intent is to launch more products in institutional businesses that would benefit across markets viz. U.S., Europe and emerging markets, he said.

The management alluded an Ebitda and return on capital employed guidance of 25% in the post-earnings conference call.

Other Highlights (YoY)

• Revenue from the mainstay North American market rose 2%, contributing to 34% of total sales. This growth was driven by launch of new products and favourable forex rates, which were offset by price erosion in some of their key molecules. The pricing pressure has remained on the same level as last year, Ramana told BQ Prime. It expects to continue to launch new products and improve operational efficiencies for growth in this geography.

• Seven new products were launched in the U.S. in the first quarter.

• European business rose 4%, accounting for 8% of the revenue. The growth was impacted by price erosion in some molecules and adverse forex rates during the quarter.

• India's revenue jumped 26%, contributing to 26% of the total revenue for the quarter. This growth was driven by divestment of a few non-core brands, revenue contribution from the products acquired/in-licensed from Novartis, growth in base business and new products contribution, while being partially offset by lack of Covid-19-related product sales in Q1 FY23.

• Five new products were launched in India.

• In order to be among the top five players in India and build big brands, the pharma company will sell and acquire brands across segments, the management said in the post-earnings call.

• Emerging markets sales fell 1%, which makes up for 17% of the revenue for the quarter. Commonwealth of Independent States countries and Romania registered a strong growth, while Russia and rest of the world registered a decline due to channel inventory normalisation and a higher base in the previous year due to Covid-related product sales.

• Pharmaceutical services and active ingredients segment fell 6%.

• Expenditure on selling, administration and distribution rose 3% to Rs 1,550 crore.

• Research and development expenses stood at 8.3% of revenue as compared to 9.2% a year ago.

• The company has a net cash surplus of Rs 1,280 crore as on June 30.

Shares of Dr. Reddy’s closed 0.73% lower prior to the result compared with a 1.87% gain in the benchmark Sensex.