After Dr Reddy's earnings were announced a day before, there was an intraday hit as high as 2.2.percent. Here are the reactions of our expert--Sarabjit Kaur Nangra from Angel Broking and Abhishek Sharma from Pharma Analyst at IIFL, whose numbers were more or less in line with expectations.
According to Nangra, “Margins were not expected to contract that badly” and called R&D to be the “culprit at the quarter-on-quarter (QoQ).”
Sharma’s analysis in terms of the Q4 numbers was, “ there is an impairment and product related charge that they have taken in the Selling, general & administrative (SG&A) amounting to Rs 50 crore”.
Below is the edited transcript of Abhishek Sharma, Pharma Analyst, IIFL and Sarabjit Kaur Nangra from Angel Broking interview with CNBC-TV18's Ekta Batra.Ekta: The operating performance if we go by what the company has reported has come in at around 15 percent margins versus 16 percent. This is not calculating it from what they report in the press release, this is basically reporting what they report in the P&L. Based on that would you have a view?Nangra: Prima facie it is lower because margins were not expected to contract that badly. Mainly the culprit as usual is R&D because if you look at the quarter-on-quarter (QoQ) R&D expenses are up 29 percent.
The sales growth of moderate 11 percent has resulted in margins getting contracted. So, overall adjusting for R&D then it is a decent performance. Apart from that, other income is lower. So, that is something which has spoilt the net profit figure. I think rest looks more or less decent overall. Ekta: Take us through what you think of this performance in terms of the segments, the geographies? North America has done well, hasn’t it? Nangra: Overall they have done fairly well. Russia is understandable given the currency impact. Apart from that, India 16 percent is very good number. Europe 32 percent is damn good number. USA 15 percent is very good, Pharmaceutical Services and Active Ingredients (PSAI) again doing significantly decent number of 12 percent. So, if you benefit in terms of currency devaluation then the numbers, topline, growth is decent. Operating performance given the credit on the R&D expenditure would have been much better. So, overall I think good set of numbers if you adjust for one-offs that are happening during the quarter.
Ekta: What are your analysis in terms of the Q4 numbers and also the fact that the forex loss of around Rs 84 crore which has been accounted in terms of the Venezuela markets? Sharma: This was somewhat expected because the market was essentially – they continued to sell in the market despite the fact that there was a huge currency risk.
So, I believe at least on the revenue side, we were not surprised because we had not built anything from the Venezuela market going forward. However, in terms of their taking a loss, a one time loss is definitely a negative. Ekta: Barring that how have you assessed the numbers because it seems as though the other parameters were quite okay, the total income in fact has come in at over Rs 3800 crore? Sharma: The numbers that I had, they have slightly missed my estimate on the revenue side. Primarily I had much better numbers for global generics so miss would have been about 3-4 percent; that is okay.
Apart from that there is an impairment and product related charge that they have taken in the Selling, general & administrative (SG&A) line which amounts to about Rs 50 crore. I believe that has led to a severe fall in their PAT. So, the PAT is way below estimates. We need to understand what really is this impairment that they have taken.
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