Weak US sales growth hits Dr Reddy's net profit

HYDERABAD: India's second largest drug maker Dr Reddy's Laboratories profits declined during the December 2014 quarter despite growth in sales, largely because of subdued rise in sales in the US market, which accounts for over half of its generic sales.

Nearly a third of depreciation in the Russian currency, higher expenditure on research and development and impairment of losses were the other key factors that dragged the Indian copycat medicine manufacturer's quarterly financial performance down.

The Hyderabad-headquartered company saw its net profit falling by 7 per cent at Rs 574 crore compared with same quarter last fiscal, while it reported 9 per cent growth in sales at Rs 3,843 crore. Though pharmaceutical services and active ingredients business registered a 21 per cent growth at Rs 611 crore, the global generics business, which contributes 82 per cent of total revenues, grew 8 per cent at Rs 3,169 crore.

However, finding the performance as beating market expectations, CLSA India's pharma analyst Alok Dalal said the performance was con sidered satisfactory, given the challenges the company faced, including the absence of major product launches in the US and currency depreciation in Russia and other CIS countries. Dalal ex pects the muted growth to continue even during the current quarter with no visibility of big product launches in the US market and continued turbulence in Russia and CIS countries.

Dr Reddy's CFO Saumen Chakraborty attributed the poor sales growth in the US to absence of major product launches, coupled with delays in product approvals by the US drug regulator. The US market, which accounts for 53 per cent of Dr Reddy's global copycat drugs, registered only 4 per cent growth at Rs 1,682 crore during the December quarter.

“Gross profit margin at 58.2 per cent in the December 2014 quarter registered 230 basis points decline compared with the same quarter a year ago, primarily due to the unfavourable currency impact. Selling, general and administrative expenses grew marginally by 2 per cent, largely owing to annual increments, while R&D expenses grew to 11.2 per cent of sales in the latest quarter, up from 8.4 per cent in the December 2013 quarter,“ said Chakraborty. Refusing to provide guidance on the current quarter performance, he hinted at muted growth, citing the instance of last fiscal where the Q4 performance was unimpressive than Q3.

Shares of Dr Reddy's gained 3.8 per cent on Thursday on the BSE.