Dr. Reddy’s shares fall after missed earnings, top losers on the Nifty 50

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Shares of Dr. Reddy’s Laboratories declined over 5% in early trading after the company’s results for the March quarter were a miss on estimates.

The drugmaker reported EBITDA margin of 26.4% for the quarter, which was lower than the CNBC-TV18 poll estimate of 28%.

In an interaction with CNBC-TV18, Dr. Reddy’s MD & CEO Erez Israeli said that the margins for the quarter were impacted due to higher expenses. However, he believes that the current margin levels give flexibility for the future.

The US business reported sales of $391 million for the quarter, which was lower than the December quarter sales of $403 million. Israeli said that the US business has remained consistent like the previous quarters and the base business saw higher market share in some key products for the company. He also added that there are enough levers for the US business growth to continue in financial year 2025.

In its earnings call, the management said that the margins for the year will remain in the 25% range and that it aims to launch over 20 products in the US market in the new financial year.

The management also spoke about the Voluntary Action Indicated (VAI) status received for its formulation facility at Bachupally and its R&D centre. It has also received a Complete Response Letter (REC) from the USFDA for its drug Rituximab.

Brokerage firm CLSA has an “underperform” rating on Dr. Reddy’s with a price target of ₹6,080. It sees a subdued medium-term outlook for Dr. Reddy’s led by the US price erosion, dependency on Revlimid generic and a high acute mix in India.

Jefferies also has an “underperform” rating on the stock with a price target of ₹5,010. It expects margins to remain under pressure in financial year 2025 due to increased R&D, and a weak US pipeline.

Out of the 40 analysts that have coverage on Dr. Reddy’s, 14 of them have a “sell” rating, while 15 of them have a “buy” call. The other 11 have a “hold” rating.

Shares of Dr. Reddy’s Laboratories are down 4.2% on Wednesday at ₹5,993. The stock is about to turn negative for the year, currently holding on to gains of 3% for the year.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow