Dr Reddy's Laboratories on Wednesday reported a 16.83% drop in its net profit at Rs 574.10 crore for the quarter ended September 30 weighed down by higher expenses and decline in growth in Russia and the US markets.
Channel consolidation in the US market followed by price erosion and lesser launches in that market also adversely impacted the quarterly performance.
During the earnings call with analysts, Abhijit Mukherjee, COO, Dr Reddy's said, "The buying pattern was heavily impacted because of the channel consolidation in the US market. Price erosion and lack of new launches together attributed to the subdued growth in revenues of the global generics."
The company's consolidated net income from sales and services grew by 6.86% at Rs 3,587.81 crore as compared with Rs 3,357.45 crore in the year ago period. The company's generics revenue in North America grew by 8% to Rs 1,429 crore during the period under review. While India business reported a double-digit growth of 14% to Rs 479.9 crore, Europe, Russia and other CIS countries reported decline in revenue. While Europe reported de-growth of 19% to Rs 143.4 crore, Russia and other CIS countries de-grew 13% to Rs 479.8 crore. However, the rest of the world (RoW) market grew by 95% to Rs 354.5 crore.
The growth in Indian business was driven by healthy volume expansion in its focus brands, some of which are also listed under the NLEM portfolio.
Revenues from Russia declined 11% primarily on account of the rouble devaluation. In constant currency, the growth is flat. Emerging markets ex-Russia recorded year-on-year growth of 57% primarily driven by strong performance in Venezuela Market.
"The depreciation in Russian and other CIS currencies also adversely impacted the revenues," said Mukherjee.
However, research & development (R&D) expenses increased by 11.5% to Rs 411.3 crore as against 9% of total revenue in the corresponding period of the last fiscal. "The R&D spends for the whole year will be between 10-11% as per our earlier guidance. The increased spends this quarter is because of a muted growth," Mukherjee added.
He also said that he is optimistic for a better second half and the company has started doing some structural changes in terms of reducing costs, reducing low-margin products and focusing more on products with higher margins. The company will also make its first abbreviated new drug application (ANDA) filing by the end of this fiscal, he added.
About the recent Congress probe regarding abnormal price hike in the US, Mukherjee said, "We have responded to the US Congress. For pravastatin sodium, although we have a marketing approval, we are not distributing the product in the market. And for divalproex sodium ER, we launched the product in August 2013 at the prices based on the then existing competitive dynamics. The company has not led or initiated any price increase activity in the market."
Dr Reddy's has also recently entered into an asset purchase agreement with Novartis Consumer Health Inc to acquire the title and rights to Habitrol franchise (an over-the-counter nicotine replacement therapy transdermal patch) and to market the product in the US territory. The agreement is subject to Federal Trade Commission (FTC) review and the transfer of asset will happen post FTC clearance.
Shares of the company, on BSE, closed at Rs 3,046.35, down 1.11% from previous close.
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