Dr Reddy's Laboratories reported a fall of 16.8 percent in its second quarter consolidated net profit to Rs 574 crore against Rs 690.2 crore in the year-ago period. Profit was slightly above estimates but topline and operational performance missed street expectations.
Consolidated operating profit during the quarter declined 12.2 percent year-on-year to Rs 646.5 crore and margin dropped 400 basis points to 18 percent as against expectations of Rs 800 crore (up 8.8 percent) and 21.6 percent, respectively.
Discussing the company results, Sarabjit Kaur Nangra of Angel Broking, said the numbers are disappointing and below their expectation. “We had expected the operating performance to hold on during this quarter also,” she said.
According to her, the sales are lower than estimates and even the margins have disappointed to a large extent. She feels the R&D expenditure, which continues to be pretty high for the company (growing at 37 percent) could be one of the key reasons.
Below is the transcript of Sarabjit Kaur Nangra’s interview to CNBC-TV18’s Latha Venkatesh and Reema TendulkarLatha: What have you made of Dr Reddy's Labs numbers?A: Very disappointing compared to our expectations because we expected the operating performance to hold on during this quarter also. The disappointment is two-fold, one is sales have been lower than expected and also margins have disappointed to a large extent. One of the key reasons is that R&D expenditure continues to be pretty higher for the company for this quarter also at around 11.5 which is one of the highest in pharma as of now. So growing at 37 percent so with a muted 7 percent growth on the top line and R&D expenditure growing much higher, these are the two factors which has spoiled the operating performance. Also there has been a sharp dip in the other income so it is more loaded on the expenditure side whereas revenues haven’t come in.
Latha: Would you be disappointed with the higher revenue expenditure, it is still an investment for the future. A: That is true but if you look at the other numbers also like finance expenditure, other things also on a year-on-year basis it is on the higher side and expenses are also higher. So even if the top line would have grown decently, I think all the expense ratios are very high like R&D 40 percent, finance expenditure 40 percent. Latha: What is your view on the stock now?A: Though the numbers and margins have been down I guess we have to wait for more clarity as to why US has done badly because apart from US rest of geographies have done fairly well. And the product launches have been very low, they have launched only one product during the quarter and they didn’t have any limited competition products. However yesterday only they had got product approvals for a limited competition product. So as product approvals increase for DRL North America again it will be back on the growth track. So inspite of conservative estimates I think the stock deserves a buy because of the valuation. So we will have to figure out what the company outlook is in terms of margin front given the high R&D expenditure they are doing but even on a conservative front they will be able to sustain decent performance. Hence on the valuations it should be a buy.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
