Dr Reddy's Laboratories beat street expectations on both topline and bottomline but 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 and higher R&D expenses. Consolidated revenue grew 8.7 percent to Rs 3,843 crore during October-December quarter from Rs 3,533.8 crore in the year-ago period, driven by PSAI and global generics businesses.
Discussing the numbers, Abhijit Mukherjee, COO of Dr Reddy’s Laboratories, said the company has done well in Russia, posting a volume growth of 30 percent in local currency terms, and the whole impact of currency devaluation has not fully played out. He however feels the Russain market looks challenging currently.
Below is the transcript of Abhijit Mukherjee’s interview with CNBC-TV18's Ekta Batra and Archana Shukla.Ekta: Can you start by taking us through Russia because the decline was just about curtailed to a nine percent decline on a year-on-year (YoY) basis. Can you just tell us what the on ground situation was and what is your expectation going forward? Do you think that the currency devaluation that we have seen is more or less factored in terms of your on ground operations?A: It is a very tough time in Russia although we have done very well. The volume growth has been very good in terms of local currency. We have grown by about 30 percent in Russia which has mitigated to a large extent the devaluation of the currency. Having said that the whole thing has not fully played out because there are some hedges which will run out by the end of the year and probably next year we will get little larger hit but the market overall we are doing quite well in terms of units as I said and which plays out in terms of mitigating part of the negatives because of the currency fall out.
Ekta: So would that mean that Russia will continue to decline going into next quarter and maybe it could show a steeper decline than what you posted this quarter. Is that how we should read it?A: In constant currency term it is very difficult to arrest the downfall. The Ruble which used to be in the range of Rs 33-34 per dollar is somewhere in the 60s and it is a massive change. Of course to a certain extent we are naturally hedged because it is a branded market but that doesn’t take away the whole impact.The thing which we will be looking forward to is robust growth in our business and some case to case price corrections in non-essential items which we will have to take. So, with that we will try and manage but certainly this is going to be a little challenging period overall but we are encouraged with our own performance in the market compared to a lot of other competitors.
Archana: 82 percent growth is what you have reported on a YoY basis. Is Venezuela contributing a lot more and what have been the other growth drivers in this market?A: Yes, Venezuela has done extremely well. There are risks in this market but any risk is accompanied with opportunities as in life and we are doing the best of the opportunities at the moment in Venezuela because the brands are well accepted. There are a lot of companies who are nervous in terms of the country, the way it is panning out. We think that since medication is for the patients and we will continue to sort of deliver, we are backward integrated and hence our supply chain is well placed and we stay committed to the country.January 22 Nicolás Maduro Moros mentioned that food and pharma would probably fall in one category of currency exchanges; in Venezuela there are three different rates of currency. So, this would remain in one specific and the fact that food and pharma is clubbed in one group we take that as a positive. We stay committed to the country. Having said that, there are risks and there are challenges.
Archana: So would this growth rate be sustainable in the coming quarters? Just a quick comment on that.A: Yes, there is opportunity the biggest risk in, its not about the market. We are very well placed in the market, there is enough demand. What we will have to calibrate and think of the actions in the market based on how what the call is Commission for the Administration of Currency Exchange (CADIVI) approval in terms of dollar repatriation. So, we will watch that very closely.Ekta: I wanted to touch upon the India growth because that has been quite firm in the past three quarters but there was a little bit of a disappointment in terms of the slowdown of the growth rate this quarter to 11 percent. What happened this quarter in India and what is you r trajectory in terms of growth possibly in the next quarter and the next six months. A: So what happens is in India market by nature, some of the billing gets done towards end of the month, the way stockists take material, that is the nature of the market By our accounting principles, it gets into our cut off And hence, so we have a relatively large cut off which is not reported in this quarter. There is no change, the growth is robust and the year we will exit in mid teens growth which is not too bad.Ekta: Moving away from the earnings, wanted to concentrate on a couple of other issues which might be pertinent to your US growth going forward. Can you give us a sense in terms of where the US Food and Drug Administration (FDA) Form 43 or the observations stand at the SriKakulam plant as of now? Have you replied and when do you anticipate to hear back from the US FDA and secondly, any sort of clarity on when you could approvals for Diovan generic as well as maybe for Nexium?A: The audit was some time in November and within the stipulated period, we responded. We responded quite comprehensively to the various observations by FDA. There were nine observations. Most of it is in public domain and we answered all that by mid December and it takes some time for FDA to go through the observations and then respond with further questions and decide the course of actions. So we are in that situation, as we speak, as in most audits which go through, there are always these observations have to be responded with a series of action points with specific dates and we are in the process of giving first update on some of those and we are responding and progressing in the right direction but beyond that we can’t comment because its in the hand of regulators. As far as the approvals are concerned, yes Diovan, till this issue is resolved, will not get approval. It’s a very crowded launch and I am not sure whether we will get back on this but in Nexium I can’t really comment because this is not a date specific approval. The file is under review and let’s see how it progresses. Archana: Would the Health Canada import ban be any sort of an impact on the earnings going forward in the coming quarters. Just a very quick comment on that before we wrap up.A: No, because we hardly have any business in Canada and this would not have any material impact and we have complied with whatever was the request.
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