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  • 29 Jul 2022
  • ICICIdirect Research

Q1 WEAK ON ALL FRONTS, ONE-OFFS OPTICAL SAVIOUR

DRREDDY - 1309 Change: 6.65 (0.51 %)

News: Revenues grew 6% YoY to Rs 5233 crore, driven by 26% YoY growth in India to Rs 1334 crore. Russia & Other CIS markets grew 4% YoY to Rs 510 crore while Europe also grew 4% YoY to Rs 414 crore. US markets grew by 2% YoY to Rs 1781 crore while RoW markets de-grew 8% YoY to Rs 390 crore. PSAI segment posted de-growth of 6% YoY to Rs 709 crore. Revenues for Q1FY23 includes License fee and service income of Rs 90.2 crore from sale of brands to JB Chemicals and Rs 139.9 crore from sale of brands to Torrent Pharma. Gross margins declined 210 bps YoY to 63.5% and EBITDA margins improved 313 bps to 18%. Adjusted EBITDA margins for one-off divestment income was at 14.2%. Subsequently, EBITDA grew 28% YoY to Rs 941 crore. PAT for the quarter was up 224% YoY to Rs 1180 crore. [Note: Dr Reddy’s recognised amount receivable of Rs 563.8 crore as other income from settlement with lndivior lnc., lndivior UK Limited and Aquestive Therapeutics].

Views: Dr Reddy’s Laboratories’ Q1 revenues were in-line with I-direct estimates, however highly skewed in different geographies. Margins for the quarter was a miss on estimates on account of higher commodity prices, adverse leverage on manufacturing overheads, price erosion and adverse forex related impact. Q1FY23 print was again marred by one offs in various directions but the actual narrative was on substantial weaker footing. Russia & CIS markets saw poor offtake due to channel inventory normalization post stocking up in Q4FY22 while US was muted due to price erosion in some key molecules. The management remains committed to working on cost rationalisation, especially on the SGN&A front and calibrating of R&D spend more towards Global Generics front & Biosimilars and lower towards proprietary products. Key growth drivers in the near term would be key launches across geographies besides continuing growth momentum in Global Generics especially in India and Russia.

Impact: Negative.