Dr Reddy’s managed to improve its operating profit margin by 2.8 percentage points to 26.6 per cent in the June quarter, compared to the same period last year. This was on three counts.

First, healthy growth in its global generics segment on the back of a good show in key markets such as the US and India helped the company’s profitability.

Strong ramp up in sales and market share of products launched in 2014-15, such as valganciclovir and sirolimus, as well as injectable products, helped the 14 per cent growth in revenues from the US market.

This helped Dr Reddy’s sustain growth momentum in this geography, amidst slowdown in the pace of new approvals by the US drug regulator over the last several months. In the home market, higher prescription share and new product launches enabled the company achieve 19 per cent revenue growth.

Consolidation of UCB’s India business with Dr Reddy’s has been completed and synergies from the merger should accrue in the forthcoming quarters.

Second, the company’s decision to consciously scale down low margin products in its pharma services and active ingredients business (PSAI) also boosted profitability. The segment’s gross profit margin (sales minus raw material cost is gross profit) improved by 1.4 percentage points to 23.7 per cent.

Third, Dr Reddy’s efforts to optimise manufacturing and sales overheads also played a role in improving profitability. The company’s selling and administration costs rose by a modest 3 per cent, slower than the 7 per cent growth in revenues.

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