Dr Reddy’s Laboratories shares drop more than 10% on fall in profit

• Dr Reddy’s Laboratories reported a 1.5% decline in consolidated net profit to ₹570 crore in June quarter.
• The company’s business in North America grew 1% year-on-year while its sales fell 1% on a quarterly basis.
• Shares of one of the biggest pharmaceutical companies in the country were down 10% on July 27.

Shares of Dr Reddy’s Laboratories hit a 10% lower circuit after the company posted a 1.5% decline in year-on-year net profit for the June quarter.

The pharmaceutical company’s profit for June quarter was almost flat at ₹570 crore compared to ₹579 crore in the same period last year.

Its North American business grew by merely 1% on a yearly basis and fell 1% on a quarterly basis on account of price erosion in some products and despite a launch of 6 new products.

Also, the company’s total expense rose by nearly 25% to ₹4,513 crore in June quarter 2021 on the back of rising expenses in impairment of non-current assets,

cost of materials consumed, purchase of stock in trade and employee benefit expense.

On the other hand, the company’s revenue grew by 11% year-on-year to ₹4,919 crore. It saw a strong 69% year-on-year growth in its India business led by increase in sale of COVID-19 drugs due to the severe second wave witnessed in India.

“We believe that the weaker set of numbers reported by Dr.Reddy’s Laboratories are due to sales degrowth in the active pharmaceutical ingredients (API) business and muted sales growth in the USA business. India business and Europe business have reported sales growth of 69% and 12% respectively. Companies' margins are down significantly and were below the market expectation,” said Yash Gupta, equity research associate at Angel Broking.

Further, the company has increased its expenses under research and development to focus on a healthy pipeline of new products pertaining to COVID-19 treatment.

"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, said the company’s co-chairman and managing director, G V Prasad.

At 2:48 p.m., July 27, Dr Reddy’s Laboratories shares were trading 10% lower at ₹4,880 and BSE Healthcare index was also down 3%. Dr Reddy’s is among the top five companies having the highest market share in the healthcare index, shows data by Moneycontrol.

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