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Dr Reddy's: No Respite from Pricing Pressure in the US - Views on News from Equitymaster
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  • Nov 13, 2017 - Dr Reddy's: No Respite from Pricing Pressure in the US

Dr Reddy's: No Respite from Pricing Pressure in the US
Nov 13, 2017

Dr Reddy's announced its results for the second quarter ended September 2017 (2QFY18). While revenues fell by 2% YoY, net profits were down 1% YoY.

Performance summary
  • In 2QFY18, revenues fell by 2% YoY primarily on account of the brutal price erosion in North America.
  • The global generics business fell by 1% YoY. Revenues from North America were down 11% YoY. This was attributed to higher price erosion due to channel consolidation, and increased competition in the company's key products.
  • Revenues from the Pharmaceutical and Active Ingredients (PSAI) business fell by 2% YoY during the quarter. However, on a sequential basis, revenues registered a growth of 22% led by improved order flow and supply situation.
  • Operating margins improved by 1.5% to 18.8% largely on account of lower selling expenses and other expenditure (as percentage of sales).
  • Despite the 7% YoY growth in operating profits, net profits fell by 1% YoY on account of reduction in other income and higher interest costs.

    Financial performance snapshot (Consolidated)
    (Rs m) 2QFY17 2QFY18 Change 1HFY17 1HFY18 Change
    Sales 36,163 35,598 -1.6% 68,610 68,930 0.5%
    Expenditure 29,893 28,904 -3.3% 58,438 59,004 1.0%
    Operating profit (EBDITA) 6,270 6,694 6.8% 10,172 9,926 -2.4%
    Operating profit margin (%) 17.3% 18.8%   14.8% 14.4%  
    Other income 438 316 -27.9% 1,108 696 -37.2%
    Interest 126 223 77.0% 274 438 59.9%
    Depreciation 2,622 2,702 3.1% 5,058 5,294 4.7%
    Profit before tax 3,960 4,085 3.2% 5,948 4,890 -17.8%
    Tax 956 1,123 17.5% 1,482 1,360 -8.2%
    Profit after tax/(loss) 3,004 2,962 -1.4% 4,466 3,530 -21.0%
    Share in profit of associates 85 92 8.2% 158 190 20.3%
    Profit after share of associates & minority interest 3,089 3,054 -1.1% 4,624 3,720 -19.6%
    Net profit margin (%) 8.5% 8.6%   6.7% 5.4%  
    No. of shares         165.8  
    Basic reported earnings per share (Rs)*         72.5  
    P/E ratio (x)*         32.2  

    (*on a trailing twelve-month basis)

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  1. 'subject company' is a company on which a buy/sell/hold view or target price is given/changed in this Research Report.
  2. Neither Equitymaster, Research Analyst or his/her relative have any financial interest in the subject company.
  3. Equitymaster's Associate has financial interest in Dr Reddy's Laboratories Ltd.
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Nov 23, 2017 (Close)

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