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Dr Reddy's Q4FY22 Review- Strong numbers driven by US, Russia, India; one-offs hit profitability

ICICI Securities 20 May 2022

What’s Buzzing:

Dr Reddy's revenues were better than I-direct estimates primarily driven by market share gains, strong launches, productivity improvement and divestment of brands. Profitability for the quarter was impacted by impairment loss of non-current assets (Rs 756.2 crore) and provisions related to Texas litigation (Rs 98.3 crore)

Context:

Q4FY22 revenues grew 15% YoY to Rs 5475 crore, driven by 55% YoY growth in Russia and CIS markets to Rs 920 crore. US market grew 14% YoY to Rs 1997 crore and India revenues grew 15% YoY to Rs 969 crore. Europe business grew 12% YoY to Rs 444 crore, while RoW markets were flat YoY at Rs 290 crore. PSAI segment posted de-growth of 5% YoY to Rs 756 crore. Revenues for Q4FY22 include Rs 177.4 crore for sales of two anti-bacterial brands in Russia and CIS along with Rs 39 crore for sale of two brands in India. Adjusted revenues were at Rs 5258.5 crore. Adjusted EBITDA for one-offs related to impairment loss and provisioning expenses was Rs 1089 crore while adjusted EBITDA margins was at 20.7%.

Our perspective:

Operationally, Russia and CIS performed well amid geopolitical challenges as Q4 saw uptick in stocking while in US, Dr Reddy’s is able to offset double digit price erosion due to new launches. Due to external challenges, some margin pressure is likely to remain in the medium term. That said, the management remains committed to working on cost rationalisation, especially on the SGN&A front. Key growth drivers in the near term would be planned key niche launches across geographies.

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