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Dr Reddy's: US Pressure Continues to Haunt - Views on News from Equitymaster
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Dr Reddy's: US Pressure Continues to Haunt
Aug 8, 2017

Dr Reddy's announced its results for the first quarter ended June 2017 (1QFY18). While revenues grew by 3% YoY, net profits plunged 57% YoY.

Performance summary
  • In 1QFY18, revenues grew by a mere 3% YoY primarily driven by higher volumes in Europe and the emerging markets as well as new launches across all major markets. However, this was offset by the brutal price erosion in North America and channel de-stocking in India on account of the GST transition.
  • The global generics business grew by 3% YoY. Major growth drivers were Emerging Markets (up 34% YoY) and Europe (up 28% YoY). Revenues from North America were down 4% YoY. This was attributed to higher price erosion, increased competition in the company's key products and discontinuation of the McNeil business.
  • Revenues from the Pharmaceutical and Active Ingredients (PSAI) business fell by 1% YoY during the quarter.
  • Operating margins shrunk by 2.3% to 9.7% largely on account of higher raw material costs (as percentage of sales).
  • Led by the 17% YoY drop in operating profits, higher interest costs and lower other income, net profits plunged 57% YoY during the quarter.

    Financial performance snapshot (Consolidated)
    (Rs m) 1QFY17 1QFY18 Change
    Sales 32,447 33,332 2.7%
    Expenditure 28,545 30,100 5.4%
    Operating profit (EBDITA) 3,902 3,232 -17.2%
    Operating profit margin (%) 12.0% 9.7%  
    Other income 670 380 -43.3%
    Interest 148 215 45.3%
    Depreciation 2,436 2,592 6.4%
    Profit before tax 1,988 805 -59.5%
    Tax 526 237 -54.9%
    Extraordinary items 0 0  
    Profit after tax/(loss) 1,462 568 -61.1%
    Share in profit of associates 73 98 34.2%
    Minority interest 0 0  
    Profit after share of associates & minority interest 1,535 666 -56.6%
    Net profit margin (%) 4.7% 2.0%  
    No. of shares 165.6 165.8  
    Basic reported earnings per share (Rs)*   72.7  
    P/E ratio (x)*   30.3  

    (*on a trailing twelve-month basis)

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