The Hindu Business Line : Tepid numbers from Dr Reddy’s

Dr Reddy’s posted a 15 per cent drop in consolidated revenues in the fourth quarter of the financial year 2007-08, which was along the expected lines, as it had sold the generic version of GlaxoSmithKline’s drug Zofran worth Rs 270 crore in January-March 2007.

Consequently, net profits have also declined by 68 per cent to Rs 103 crore. However, Dr Reddy’s also encountered difficultly in containing operational costs; Selling, General & Administration (SG&A) expenses increased by 24.5 per cent to Rs 430 crore. Further pressure was put on the operating income as expenditure related to research and development went up by 20 per cent.

Still, operating profit was positive at Rs 126 crore as against Rs 127-crore loss on a quarter-on-quarter basis.

Although revenues from North America generics business took a hit, revenues from the branded formulations business rose by 22 per cent, driven by growth across key markets such as India, Romania and CIS.

German problem

Dr Reddy’s German operations i.e. Betapharm faced pressure amidst stiff pricing environment.

While sales improved by 20 per cent on a sequential basis led by volumes, the impact of several price reforms, increasing rebates to insurance companies and change in the composition of its top products continues to haunt Dr Reddy’s profitability.

Relief in German operations might only come after the company shifts around 60 per cent of the manufacturing of its products to India as indicated earlier.

Betapharm’s gross profit accounted for a substantial portion of Dr Reddy’s consolidated net profit and hence, any decline in Betapharm’s gross margins impacts Dr Reddy’s net profit significantly.

Investors would look forward to a better performance from Dr Reddy’s through possible opportunities in its generic business (exclusive arrangements), healthier outlook for Betapharm and growth from newly-acquired businesses.

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