Dr Reddy's Labs, on January 27, posted a loss of Rs 569.7 crore for quarter that ended on December 2019, as against a profit of Rs 485.2 crore YoY, due to an impairment loss of Rs 1,320 crore during the quarter.
The company announced an impairment of Rs 1,110 crore on account of women's contraceptive drug Nuvaring generic, and Rs 210 crore on intangibles on other products during the quarter. After adjustment for impairment, the profit before tax stood at Rs 790 crore for the quarter.
The launch of Nuvaring generic has been delayed due to queries from USFDA, which resulted into increasing competition from another generic and authorised generic drugs. Hence, the company took an impairment charge for the drug.
Revenue during the quarter grew by 13.86 percent year-on-year to Rs 4,384 crore and operating profit jumped 24.1 percent with 200bps YoY margin expansion in Q3.
Here are key highlights from Dr Reddy's Labs' conference call by Narnolia Financial Advisors:
Management participants: Erez Israeli – COO, Saumen Chakraborty – CFO
The sales from North America increased by 7 percent YoY to $224 million on account of higher volumes in some of its key molecules.
Of the 30 products expected to be launched in USFDA in FY20, the company has launched 22 products so far, and expects to launch the remaining this year itself. For All Earnings Related News - Click Here
The company has filed 20 formulations across the global markets, with three Abbreviated New Drug Application (ANDAs) in the US. It has filed 20 Drug Master Files (DMFs) across the markets, with three DMFs in the US.
The company is focusing on increasing the market share of products like gSuboxone, and a other few products in the US market.
Sales in Europe grew by 55 percent YoY, and 12 percent sequentially. Revenue from the emerging market and India businesses grew by 19 percent and 13 percent YoY respectively.
The company launched nine products in Europe, 17 products in EM and eight new brands in India, including Celevida (Nutrition segment).
Among the emerging markets, Russia grew strongly on account of retail growth and new tender.
For the India business, secondary sales, as reported by IQVIA, is 10.6 percent as opposed to the market growth of 9.6 percent. According to the management, profitability of its India business has grown much better than the topline, and it expects that there is more scope for improvement.
The gross margin for global generics and Pharmaceutical Services And Active Ingredients (PSAI) grew by 270 bps and 540 bps to 58.2 percent and 30 percent respectively.
Total impairment charge for the quarter that ended on December 31, 2019 is Rs 1,320 crore, of which Rs 1,114 crore is towards impairment of gNuvaring.
The research and development (R&D) spends for the quarter was at Rs 390 crore, 9 percent of sales in comparison to 9.5 percent of sales in Q3FY19. The management expects the R&D spend in the absolute terms to be in the range of Rs 1,500- 1,600 crore going forward.
The free cash flow this quarter was Rs 582 crore. Capex for the quarter was at Rs 120 crore, and the net surplus cash stood at Rs 414 crore as of December 31, 2019.
On the regulatory front, the Active Pharmaceutical Ingredient (API) manufacturing facilities in Srikakulam received a warning letter on November 5, 2015. As on 27 January, 2020, the facility is undergoing inspection by the USFDA.
Going ahead, the major focus of the company would be to focus on growth across markets, especially the emerging markets, and cost efficiency, which would lead to faster growth of the bottom-line than the topline.
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