Dr Reddy’s Q4 profit sinks on impairment charges; revenue beats estimates

Dr Reddy’s Labs, the second-largest Indian drugmaker by revenue, saw its profit tank under the weight of impairment charges for the three months through March 2022 but surprised with better-than-expected top line growth.

The Hyderabad-based company’s consolidated net profit sank 76% to Rs 88 crore from Rs 362.4 crore in the quarter ended March 31, 2021. Analysts were expecting the company’s net profit to be upwards of Rs 600 crore.

The firm booked impairment charge of Rs 752 crore majorly due to product impairment of PPC-06 (Tepilamide Fumarate Extended Release Tablets) of Rs 430 crore on account of its decrease in market potential and impairment of Shreveport plant assets and goodwill of Rs 310 crore.

Consolidated revenue rose 15% to Rs 5,437 crore in the fourth quarter. Brokerage houses were expecting revenue growth to come at 10-12% in the quarter.

The company’s share price was up 0.48% in mid-day trades in a weak Mumbai market on Thursday.

Other Key Highlights

1) EBITDA at Rs 1,298 crore was up 15% year-on-year.

2) EBITDA margins at 23.9% posted a marginal uptick from 23.8% in Q3 FY22 but were at the same level in Q4 FY21.

3) Gross margins at 52.9% was, however, lower compared with 53.7% in the year ago period and 53.8% in the preceding quarter ended December 2021.

4) Global generics business was the primary revenue driver with 19% rise, led by 36% growth in emerging markets business, followed by India (15%), North America (14%) and Europe (12%).

5) Pharmaceutical Services and Active Ingredients (PSAI) business declined 5% year-on-year but grew 4% sequentially to Rs 755.7 crore.

6) Revenue for Russia for Q4 at Rs 690 crore grew 70% YoY and 45% QoQ; QoQ growth was partly impacted by adverse forex rates, but this powered the emerging markets growth overall during the quarter.

Management Commentary

GV Prasad, co-chairman and MD, Dr Reddy’s Labs, said the company delivered healthy growth in revenue, though the profits were impacted by impairment charges.

“In spite of multiple external challenges, our core businesses performed well driven by an increase in market share, some strong launches and productivity improvement,” Prasad said.

“We will continue to focus on growing our core businesses, invest in future growth drivers, and work towards greater integration of Sustainability in our businesses,” he added.