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This is an entirely free service. No payments are to be made.Revenues decline by 35% YoY in 2QFY08 owing to the high base effect in 2QFY07, wherein the company generated revenues from the authorised generics deals.
Excluding the impact of the authorised generics, revenues have registered a 4% YoY growth.
EBDITA margins contract sharply by 980 basis points (9.8%) on the back of an increase in R&D expenses and SG&A expenses (as percentage of sales).
PAT falls by 62% YoY led by the fall in operating profits despite higher other income and lower interest and tax expenses.
(Rs m) | 2QFY07 | 2QFY08 | Change | 1HFY07 | 1HFY08 | Change |
Net sales | 19,440 | 12,557 | -35.4% | 32,807 | 24,484 | -25.4% |
License fees and service income | 196 | 147 | -25.3% | 320 | 209 | -34.8% |
Expenditure | 14,754 | 10,785 | -26.9% | 25,725 | 20,181 | -21.6% |
Operating profit (EBDITA) | 4,882 | 1,919 | -60.7% | 7,402 | 4,512 | -39.0% |
EBDITA margin (%) | 25.1% | 15.3% | 22.6% | 18.4% | ||
Other income | 190 | 562 | 195.7% | 436 | 1,097 | 151.9% |
Interest (net) | 474 | 137 | -71.1% | 862 | 476 | -44.8% |
Depreciation | 827 | 1,033 | 24.9% | 1,675 | 1,969 | 17.5% |
Profit before tax | 3,771 | 1,310 | -65.3% | 5,300 | 3,164 | -40.3% |
Tax | 850 | 206 | -75.8% | 1,090 | 190 | -82.6% |
Minority interest | 4 | 1 | -67.5% | 4 | 4 | 2.5% |
Profit after tax/(loss) | 2,925 | 1,106 | -62.2% | 4,214 | 2,978 | -29.3% |
Net profit margin (%) | 15.0% | 8.8% | 12.8% | 12.2% | ||
No. of shares (m) | 153.5 | 168.1 | 153.5 | 168.1 | ||
Diluted earnings per share (Rs)* | 50.1 | |||||
Price to earnings ratio (x)* | 12.6 |
API: During the quarter, the API segment witnessed an 11.5% YoY growth on a consolidated basis led by the 40% YoY revenue growth in India. Sales in India were driven by higher sales of ‘Ciprofloxacin’, ‘Clopidogrel’ and ‘Ramipril’. While revenues from North America recorded a robust 46% YoY growth on the back of new product launches, revenues in the rest of the world markets decreased by 9%. This was largely due to the impact of higher sales from the supplies of ‘Sertraline’ to Teva during the 180-day exclusivity accorded to the latter in 2QFY07.
Generics: Dr. Reddy’s revenues from the generics business (both the US and Europe) witnessed a 64% YoY decline during the quarter. This was largely due to the high base effect on the back of the authorised generics deals (for ‘Simvastatin’ and ‘Finasteride’) in 2QFY07 in the US. Excluding this impact, revenues from the US generics market clocked an impressive 63% YoY growth. In the US, ‘Fexofenadine’ (Allegra) generated revenues to the tune of Rs 586 m (5% of total sales) and achieved market share of 46%, albeit at significantly lower prices than last year. Revenues from ‘Finasteride’ reported revenues of Rs 631 m (5% of revenues), out of which a large part was due to the commencement of supplies to the US government department. During the quarter, Dr. Reddy’s filed 1 ANDA taking the total filings in the first six months of FY08 to 9 and received approvals (including tentative approval) for 8 ANDAs. The company now has 69 ANDAs pending approval.
In Europe, revenues fell by 25% YoY during the quarter largely due to supply constraints faced by Betapharm in Germany. Betapharm reported a 27% YoY dip in revenues for the quarter. The regulatory changes introduced by the German government leading to severe pricing pressure also impacted sales. To combat this, Dr. Reddy’s is in the process of transferring products to India to ease the supply constraints and has so far transferred 20 products. Besides this, in line with the regulatory changes, Dr. Reddy’s is also focusing on listing its products with the insurers in Germany. The key launches made by Betapharm during the quarter were ‘Oxycodone’, ‘Finasteride’ and ‘Amlodipine Besylate’. ‘Oxycodone’ gained a market share of 8% and contributed 7% to Betapharm’s revenues.
(Rs m) | 2QFY07 | 2QFY08 | Change | 1HFY07 | 1HFY08 | Change |
APIs | 2,906 | 3,240 | 11.5% | 5,215 | 5,857 | 12.3% |
- India | 502 | 703 | 40.0% | 1,127 | 1,238 | 9.8% |
- International | 2,404 | 2,537 | 5.5% | 4,088 | 4,619 | 13.0% |
Branded Formulations | 3,283 | 3,815 | 16.2% | 6,810 | 7,866 | 15.5% |
- India | 1,891 | 2,054 | 8.6% | 3,633 | 4,076 | 12.2% |
- International | 1,392 | 1,761 | 26.5% | 3,177 | 3,790 | 19.3% |
Generics | 12,113 | 4,392 | -63.7% | 18,850 | 8,639 | -54.2% |
- US | 9,041 | 2,092 | -76.9% | 13,341 | 3,892 | -70.8% |
- Europe | 3,072 | 2,300 | -25.1% | 5,509 | 4,747 | -13.8% |
Custom Pharmaceutical Services | 1,668 | 1,160 | -30.5% | 3,086 | 2,177 | -29.5% |
- Organic business | 234 | 528 | 125.6% | 412 | 715 | 73.5% |
- Mexico | 1,434 | 632 | -55.9% | 2,674 | 1,462 | -45.3% |
Others | 69 | 62 | -10.1% | 127 | 148 | 16.5% |
Total | 20,039 | 12,669 | -36.8% | 34,088 | 24,687 | -27.6% |
Formulations: In the formulations segment, Dr. Reddy’s international sales grew by a robust 27% YoY on a consolidated basis, driven by strong performances of Russia and the CIS markets. While revenues from Russia grew by 25% YoY, revenues from the CIS markets registered a 25% YoY growth. As far as the domestic business is concerned, revenues from the same grew by 9% YoY driven by key brands namely ‘Omez’, ‘Stamlo’, ‘Beta’, ‘Atocor’ and ‘Razo’.
Custom manufacturing (CPS): Revenues from the custom manufacturing business declined by a significant 31% YoY due to the 56% YoY fall in revenues from the Mexican business. This was attributed to the softening of demand for a key product ‘Naproxen’ due to piling up of inventories with the customers and hence the volume growth was not as high as in the corresponding quarter last year. The organic business reported a splendid 126% YoY growth and capped the decline in revenues from the overall custom manufacturing business.
Cost break-up (Consolidated)
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Bottomline tumbles: A 61% YoY drop in operating profits led to the 62% YoY dip in net profits for the quarter despite the substantial rise in other income and lower tax expenses. Other income was higher due to forex gains of Rs 256 m in 2QFY08 as compared to Rs 55 m in 2QFY07. Tax expenses were lower due to the benefit of the reduction in deferred tax liability relating to Betapharm to the tune of Rs 1.5 bn. This reduction was primarily on account of lowering of the tax rate to 30% from 39% at the time of acquisition.
(%) | 1QFY07 | 2QFY07 | 3QFY07 | 4QFY07 | 1QFY08 | 2QFY08 |
Net sales growth | 148.4% | 246.5% | 165.3% | 142.9% | -11.1% | -35.4% |
Operating profit margin | 18.9% | 25.1% | 19.7% | 37.3% | 21.8% | 15.3% |
Net profit margin | 9.6% | 15.0% | 7.1% | 26.2% | 15.8% | 8.8% |
As regards Betapharm, the company is expected to face difficult conditions in the medium term due to regulatory changes in the German market. But, in the long-term, Betapharm is expected to boost Dr. Reddy’s presence in the European region. We maintain our positive view on the stock from a long-term perspective.
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