Good show in major markets – US (15 per cent), India (16 per cent) and Europe (32 per cent), helped the 11 per cent growth in Dr Reddy’s revenues for the March quarter, despite challenges in the other key market – Russia and CIS.
Dr Reddy’s revenues in the Russia and CIS region declined 27 per cent during the March quarter.
The sharp depreciation of rouble against US dollar in the early part of 2015 not only led to a slow growth in revenue but also impacted the company’s profitability on two counts.
First, higher forex losses due to the currency weakness ate into Dr Reddy’s profits. Second, Russia and CIS region being high-margin geographies, lower contribution from these markets led to a 2.5 percentage point fall in the company’s gross profit margin (gross profit is revenue minus raw material cost) during the March quarter.
Gross profit margin
A fall in gross profit margin coupled with higher research and development expenses led to 2 percentage point fall in the company’s operating profit margin to 20.8 per cent, compared with the March quarter last year.
However, double digit growth in US, aided by the launch of nicotine replacement brand Habitrol, acquired from Novartis and India, which also enjoy healthy margins, partially compensated for the weakness in the Russia and CIS market.
A strong pipeline of 68 products in the US, recovery in rouble, and depreciation of rupee against US dollar should aid Dr Reddy’s performance in the forthcoming quarters.