Dr. Reddy’s Labs drops 5% despite 1,257% sequential growth in Q1 profit; here's why

Shares of Dr. Reddy's Laboratories fell nearly 5% in early trade on Friday even after the pharma major reported strong growth in its quarterly earnings. The profits were aided by a few non-recurring incomes, which offset the near-term headwinds. During the quarter under review, the company recognised the amount receivable of ₹563.8 crore as other income from the settlement with Indivior lnc., lndivior UK Limited, and Aquestive Therapeutics. The margins for the quarter fell short of market expectations due to higher commodity prices, adverse leverage on manufacturing overheads, price erosion, and adverse forex-related impact.

Dr. Reddy's Laboratories share price opened lower at ₹4,200, against the previous closing price of ₹4,259.20 on the BSE. During the session so far, the pharma heavyweight declined as much as 4.78% to hit a low of 4055.75, driven by strong volume. As many as 0.32 lakh shares changed hands over the counter on the BSE as compared to the two-week average volume of 0.26 lakh stocks.

The stock has witnessed selling pressure in the recent past, with the share price falling nearly 6% in a month and more than 16% in the current calendar year. In the last one year, the counter has given a negative return of 12% to its shareholders.

Dr. Reddy's has posted a consolidated net profit of ₹1,187.6 crore in Q1FY23, up 108.05% from ₹570.8 crore in the same period last year. On a sequential basis, the profit zoomed 1,257.25% from ₹87.5 crore in the March quarter.

The consolidated revenue from operations rose 6% to ₹5,215.4 crore in June quarter of 2022, compared with ₹4,919.4 crore in Q1FY22. On a quarter-on-quarter basis (QoQ), the revenue dropped by 4.07% from ₹5,436.8 crore in Q4FY22. The revenue growth was partially offset due to a decline in Covid-19 product sales in the current quarter.

G V Prasad, Co-Chairman and MD, said, "Our underlying business revenues adjusted for Covid products contribution during last year have grown well. The profits were aided by a few non-recurring incomes, offsetting the near-term headwinds. We continue to improve the health of our core businesses through productivity improvement and robust product pipelines."

On the operating front, gross margins declined 210 bps YoY to 63.5%, while the Earnings before Interest, Taxes, Depreciation, and Amortisation (EBITDA) margin rose to 34.1%, from 20.7% in the corresponding period last year. Research & Development (R&D) spending dropped to 8.3% of revenues as compared to 9.2% in the same period last year.

Region-wise, revenues from the global generics segment stood at ₹4,430 crore, up 8% YoY on the back of new product launches. However, on a sequential basis, it declined by 4% due to a drop in sales in North America.

Revenue from India business grew by 26% YoY to ₹1,330 crore, driven by the divestment of a few non-core brands, revenue contribution from the products acquired/in-licensed from Novartis, growth in the base business, and new products contribution.