Dr. Reddy’s Q2 Results: Profit Rises, Beats Estimates

Dr. Reddy’s Laboratories Ltd.’s second quarter after-tax profit rose beating estimates as its input costs fell over the previous year.

The Hyderabad-based drugmaker’s net profit stood at Rs 1,114 crore in the three months ended September, up 12% over the previous year, according to the exchange filing. That compares with the Rs 761-crore consensus estimate of analysts tracked by Bloomberg.

Sequentially, the profit fell 6%.

Dr. Reddy’s Q2 FY23 Highlights (YoY)

• Revenue rose 10% to Rs 6,332 crore, compared to an estimate of Rs 5,805-crore.

• Ebitda was up 40% at Rs 1,901 crore against the Rs 1,239-crore forecast.

• Margin was at 30% against 23.5% a year ago, and an estimate of 21.3%.

"We are pleased with the strong financial performance in the current quarter, driven by the launch of Lenalidomide capsules in the U.S. market," GV Prasad, co-chairman and managing director at Dr. Reddy’s, said in the exchange filing.

The company said gross margins improved majorly "due to product mix (including new products), accruals related to production linked incentive scheme, which was partly offset by price erosion and provision made on inventory for Covid products".

The company maintains its guidance of 25% Ebidta and return on capital employed going forward, MV Ramana, executive vice president and head of the branded formulations business at Dr. Reddy's, told BQ Prime.

The U.S. business has grown due to new launches and the Russia business is back to normalcy with no payment-related issues, Ramana said.

According to him, price erosion on base business in the U.S. continues to remain at the same level, and there has not been any easing in that.

Ramana expects single-digit growth in the U.S. business and new products to augment growth from time to time.

The company intends to deploy Rs 1,500 crore in biosimilar and injectables, it announced during the earnings call.

China, as a market, would be meaningful in two years as the company is expecting product approvals in Q3 and Q4, Ramana said.

Other Highlights (YoY)

• Revenue from the mainstay North American market rose 48%, contributing 44% of the total sales. This was driven by launch and scale-up of new products and favourable forex movement, which was partly offset by price erosion in some of its key molecules.

• Seven new products were launched in the U.S. in the second quarter, including the Lenalidomide (Revlimid) capsules.

• European business rose 2%, accounting for 7% of the revenue.

• India's revenue was up 1%, contributing 18% of the total revenue for the quarter. Growth was impacted by a higher base, which included contribution from Covid-19 product sales. Adjusted for this, the company has grown in double digits, it said.

• Two new products were launched in India.

• Emerging markets sales fell 6%, making up 19% of the revenue for the quarter.

• Pharmaceutical services and active ingredients segment fell 23%. It made up 10% of the total revenue. Year-on-year, the decline was primarily on account of lower volumes due to higher base in Q2 FY22 which had Covid-19 product sales, and is partly offset by new product sales and favourable forex rates, the company said in the filing.

• Expenditure on selling, administration and distribution rose 4% to Rs 1,660 crore.

• Research and development expenses stood at 7.7% of revenue. This was the same in percentage terms a year ago.

• The company has a net cash surplus of Rs 1,370 crore ,as on Sept. 30.

Shares of Dr. Reddy’s closed 1.06% lower prior to the results, compared with a 0.34% gain in the benchmark Sensex.

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