Feb 20, 2013, 02.03 PM IST | Source: CNBC-TV18

Dr Reddy's hopes to keep margins, despite high R&D cost

Dr Reddy's Laboratories is hopeful of maintaining its operating margins going ahead on the back of impending new product launches, however cautioned of higher R&D expenses going ahead.

Dr Reddy's Laboratories , which posted dismal third quarter results is hopeful of maintaining its operating margins going ahead on the back of impending new product launches. However, the company looks cautious of higher research and development expenses. 

"We hope to retain the margin in coming quarters despite increase in R&D cost. R&D cost has crossed 7 percent this quarter and it will be north of 7 percent in coming quarters," Saumen Chakraborty, chief financial officer, Dr Reddy's Laboratories said in an interview to  CNBC TV18.  He is quick to add that the company's marging  will get better traction as and when it gets approval for new product launches.

The company's operating margins in the third quarter plunged to 15.8 percent from 18.2 percent a quarter ago due to higher research development expenses and delay in approval from certain products from US. 

The pharmaceutical company's consolidated net profit in third quarter declined 29  percent year-on-year to Rs 363 crore, while consolidated revenue grew marginally by 3.5 percent from a year ago to Rs 2,865 crore.

Uncertainty in product approvals
The pharmaceutical company launched a Finasteride Tablets (1 mg), a bio-equivalent generic version of Propecia tablets in the US market in January. Although, Chakraborty did not provide details on revenue addition and margin improvement following launch of Finasteride Tablets, he claimed that the company has already got 70 percent market share for the drug post launch.

The Hyderabad based company continues to face uncertainty on drug approvals in the US market. "We are not being able to exactly predict the approval timeline. It may happen in Q4, it may even get carried forward to the next year," he said.

The company is, however, expecting to launch around 10-15 new products in the US market in FY14.

Domestic and international market

Dr Reddy's has been growing well in Russia CIS market with a growth rate of around 18%, Chakraborty said. The company also sees promising growth in emerging markets. 

The pharmaceutical companies have witnessed muted growth in domestic market for sometime now. Dr Reddy's, however, has recovered in the domestic market with around 12 percent growth. "Some of the lead indicators in terms of our attrition rate of the sales growth has gone down and new product launches which has happened in India are doing well. So we hope to do better," Chakraborty said.

Dr Reddys Labs stock price

On March 27, 2015, Dr Reddys Laboratories closed at Rs 3414.75, down Rs 34.45, or 1 percent. The 52-week high of the share was Rs 3662.00 and the 52-week low was Rs 2250.00.

The company's trailing 12-month (TTM) EPS was at Rs 92.70 per share as per the quarter ended December 2014. The stock's price-to-earnings (P/E) ratio was 36.84. The latest book value of the company is Rs 547.54 per share. At current value, the price-to-book value of the company is 6.24.

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