Discussing Dr Reddy‘s third quarter earnings, Sarabjit Kaur Nangra told CNBC-TV18‘s Ekta Batra and Sonia Shenoy the numbers were broadly in line but some aspects â€“ decent margins despite higher R&D spend and a less-than-expected hit in revenues from Russia â€“ were positive.
Discussing Dr Reddy’s third quarter earnings, Sarabjit Kaur Nangra told CNBC-TV18’s Ekta Batra and Sonia Shenoy the numbers were broadly in line but some aspects – decent margins despite higher R&D spend and a less-than-expected hit in revenues from Russia – were positive.
While Vivek Kumar of SBICap Securities said the company beat street’s expectations with 15 percent (QOQ) growth in the North American business.
Dr Reddy's Laboratories beat street expectations on topline and bottomline front but the operating performance was below estimates. Consolidated net profit of the drug maker fell 7 percent year-on-year to Rs 574.5 crore, impacted by weak operational performance. Higher R&D expenses also affected the profitability.
Below is the transcript of the interview with Sarabjit Kaur Nangra and Vivek Kumar on CNBC-TV18.
Ekta: How have you read Dr Reddy’s Laboratories numbers this time?
Nangra: Numbers have been a bit on the higher side but broadly if I see its operating metrics, they are broadly in line. Margins at 18.8 percent in light of R&D being at 11 percent of sales are definitely a good set of numbers.
Ekta: How have you read the Russia operations which are down 9 percent this time around. Were you estimating further decline?
Nangra: That is what I said, it’s a good set of numbers. Even yesterday we saw Ranbaxy numbers were greatly impacted. So in that context, Dr Reddy’s, which is a major player [in Russia and the CIS], has managed to salvage it on a large extent by this 10 percent dip.
Only disappointment is as you pointed out India [revenue growth] is at 11 percent. [But] Dr Reddy’s India numbers tend to be lower than the market. Overall, a decent set of number.
Margins are on the positive side as of now, given that R&D was still higher at 11 percent. So that would stand out. Rest of the things is more or less positive; and Russia at 10 percent [dip] is a good salvage.
Ekta: What is your reading on Dr Reddy’s?
Kumar: I think these are good set of numbers. They are almost 8-10 percent above our estimate at the EBITDA level as well as the revenue and profit after tax (PAT) level. The larger part of the positive surprise has been on the North America business which quarter-on-quarter (Q-o-Q) was up 15 percent, which is an important factor compared to some of the street expectations and year-on-year (Y-o-Y) also they have managed to grow 4 percent.
If you look at India business, 11-12 percent growth is still decent. So in my sense, the overall numbers appears to be good. In fact global generics gross margins has been quite stable at 66 percent Q-o-Q which marks that at least some of the products in the US markets have done good in terms of the market share right.
Ekta: Based on what you have seen from these numbers, would there be any sort of change in your estimates or would the fact that the US FDA 483 on the Srikakulam plant and the lack of -- rather slowing -- approvals from US FDA or uncertainty now in terms of approvals, would that be something which would possibly offset your optimism on these numbers
Kumar: We would like to stick to our initial projections rather than changing it towards upside to it. So I think the Srikakulam 483 is still sometime away for the FDA to react on it, the company would have definitely worked out in terms of correction actions that needs to be taken up.
So I don’t foresee there are going to be major negatives ahead. In fact FY16-FY17 outlook from the company looks to be much more biased because you have got US strong injectables coming in to play. So we continue to like and prefer Dr Reddy’s in our overall pack.The Great Diwali Discount!
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