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Dr Reddy's: Milestone Payment Drives Sales - Views on News from Equitymaster

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Dr Reddy's: Milestone Payment Drives Sales
Feb 9, 2018

Dr Reddy's announced its results for the third quarter ended December 2017 (3QFY18). While revenues were up 3% YoY, net profits were down 38.5% YoY.

Performance summary
  • Dr Reddy's net sales were up 3% largely led by the Proprietary Products segment triggered by the milestone payment of Rs 1.3 billion received from Encore Dermatology on account of the out-licensing of the drug IMPOYZ to the latter.
  • The Global Generics business fell by 2% YoY, while the PSAI business witnessed a mere 1% YoY growth during the quarter. The Global Generics business saw its revenues drop due to adverse foreign exchange, and fall in revenues in North America and Europe.
  • North American revenues were down 3% YoY on account of higher price erosions due to channel consolidation and increased competition in some of its key molecules. That said, North America did well to record a sequential growth of 12% led by contribution from new products, the major one being Sevelamer Carbonate.
  • Revenues from Europe declined 7% YoY, because of higher price erosion in some of the company's key molecules coupled with temporary supply disruptions.
  • As far as emerging markets are concerned, revenues from Russia were up by 9% YoY, while those from the Rest of the World (ROW) were down 17% YoY.
  • India grew by 3% YoY. Normalizing for GST transition related adjustments, growth on a like to like basis stood at 11% YoY.
  • Operating margins shrunk by 2.5% to 20.7% largely on account of higher raw material costs and selling expenses (as percentage of sales).
  • Fall in operating profits coupled with higher tax expenses led to the 38.5% YoY fall in the bottomline.

    Financial performance snapshot (Consolidated)
    (Rs m) 3QFY17 3QFY18 Change 9mFY17 9mFY18 Change
    Sales 37,232 38,341 3.0% 105,842 107,271 1.4%
    Expenditure 28,587 30,414 6.4% 87,025 89,395 2.7%
    Operating profit (EBDITA) 8,645 7,927 -8.3% 18,817 17,876 -5.0%
    Operating profit margin (%) 23.2% 20.7%   17.8% 16.7%  
    Other income 403 430 6.7% 1,510 1,103 -27.0%
    Interest 164 172 4.9% 438 610 39.3%
    Depreciation 2,665 2,715 1.9% 7,723 8,009 3.7%
    Profit before tax 6,219 5,470 -12.0% 12,166 10,360 -14.8%
    Tax 1,385 2,528 82.5% 2,867 3,888 35.6%
    Profit after tax/(loss) 4,834 2,942 -39.1% 9,299 6,472 -30.4%
    Share in profit of associates 89 85 -4.5% 247 275 11.3%
    Profit after share of associates & minority interest 4,923 3,027 -38.5% 9,546 6,747 -29.3%
    Net profit margin (%) 13.2% 7.9%   9.0% 6.3%  
    No. of shares         165.8  
    Basic reported earnings per share (Rs)*         61.1  
    P/E ratio (x)*         35.9  

    (*on a trailing twelve-month basis)

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