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Dr Reddy’s Laboratories posted its second-quarter earnings report on Friday with a 30% year-on-year (YoY) jump in its consolidated net profit up from Rs 762 crore in the year-ago period to Rs 992 crore. On a sequential basis, the company’s profit rose 74% from Rs 570 crore in Q1 FY22 to Rs 992 crore in the quarter under review.

The pharma heavyweight beat the market estimates after posting revenue of Rs 5,763 crore in this quarter, up by 18% on a YoY basis. This comes on the back of an expansion in the production of life-saving drugs like Remdesivir and Favipiravir that have been extensively used in severe COVID-19 cases. Despite stellar growth in sales, the company’s operating expense decreased by 2% from the April to June quarter.

The gross margin for the pharma major grew to 53.4% compared to 52.2% in the last quarter probably indicating the consolidation of the business but is nonetheless good news for the markets.

Dr.Reddy’s holds the sole rights to manufacture and distribute the Russian COVID-19 vaccine ‘Sputnik V’ in India and continues to ride on the increasing demand for global generic drugs. 

The global generics business for the company grew by 19% YoY. Revenue from the segment is up by 15% quarter-on-quarter (QoQ) from Rs 4,743 crore in Q1 FY22 to Rs 4,111 crore in the quarter under review.

While the company continues to focus on the genetics market and its API business, the pharmaceutical services and active ingredients segment for Dr.Reddy’s yielded revenue of Rs 999 crore at the end of Q2 FY22. This is a 13% QoQ increase from the Rs 886.2 crore reported in Q2 FY21, however, it is 2% down on a yearly basis. 

The proprietary drugs business saw a colossal growth of 1988% QoQ in the September quarter. This was on cue after the company decided to exit some of its market-established proprietary drug brands. 

At the end of the trading session, the stock of Dr.Reddy’s was at Rs 4,635 after a 1.44% increase during the day.

Dr Reddy’s Q2 Results – Hits

  • Revenue up by 17% QoQ from Rs 4,919 crore to Rs 5,763 crore.
  • Gross margin up at 53.4% compared to 52.2% in the last quarter.
  • EBITDA amounts to Rs 1,557 crore which is 27% of the Revenue.
  • Profit before tax up by 71% QOQ at Rs 1,268 crore from Rs 742 crore in the June quarter.
  • Earnings Per Share (EPS) up by 74% QoQ from Rs 45.8 to Rs 59.6.
  • Revenue in emerging markets rose by 42% QoQ from Rs 863 crore to Rs 1,298 crore.

Dr Reddy’s Laboratories Quarterly Results – Misses

  •  Revenue from global generics in North America largely remained flat.
  •  Revenue from pharmaceuticals and active ingredients took a 2% hit YoY.
  • The company’s revenue from Sputnik V is down due to low sales.

Segment-wise revenue

  • Pharmaceutical Services and Active Ingredients: 13% QoQ increase in revenue from Rs 886.2 crore to Rs 999 crore. YoY revenue down by 2%.
  • Global Generics: Revenue up by 15% QoQ from Rs 4,743 crore to Rs 4,111 crore.
  •   Proprietary Products: Revenue up by 1988%  QoQ from Rs 5.9 crore to Rs 123.2 crore.
  • Others: Revenue up by 24% QoQ from Rs 48.2 crore to Rs 59.7 crore.

What the Management says

Commenting on the results, Co-Chairman  & MD, G V Prasad said “I am pleased with the improvement in the financial performance across our businesses. While we continue to strengthen our core businesses of generics and APls, we are also making investments in our long-term growth drivers and deeper innovation capabilities. Our focus remains on meeting unmet patient needs around the world in keeping with our purpose”.

Other things to know

  • The company expanded its production of life-saving drugs like Remdesivir and Favipiravir that have been used in severe COVID-19 cases.
  • The company continues to be the sole distributor of the Russian COVID-19 vaccine Sputnik in the country.
  • Sputnik V sales are down over the past few months on account of the high vaccine price, the Government’s free vaccine program, and a sharp spike in COVID cases in Russia.
  •  The company is currently conducting clinical trials of its single-dose COVID-vaccine Sputnik Light and is developing other drugs to treat mild to severe COVID patients. 
  • The company currently has a P-E ratio of 43.74 which is higher than the industry average of 32.89.
  • Dr Reddy’s Return on Equity or ROE is 11.5% while its dividend yield is 0.55% against the industry average of 0.68%.
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