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Updated February 1st, 2024 at 07:44 IST

Dr Reddy's posts mixed set of Q3 results amid US pipeline concerns: Report

The company's US operations have historically been volatile, raising questions about the sustainability of its performance, the brokerage firm highlighted.

Tanmay Tiwary
Dr Reddy's
Dr Reddy's | Image:Dr Reddy's
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Dr Reddy's Laboratories posted a mixed set of third quarter (Q3FY24) results, marked by both promising developments and persistent challenges. The company's earnings before interest, taxes, depreciation, and amortisation (EBITDA) for the December quarter (Q3FY24) met analysts' expectations, demonstrating stability despite ongoing investments aimed at bolstering future pipelines, brokerage firm Prabhudas Lilladher said in a note.

Notably, Dr Reddy's recorded a grant income of Rs 120 crore for the quarter and Rs 340 crore for the nine-month period from the Production Linked Incentive (PLI) scheme.

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While the base business margins and US sales, excluding revenue from Revlimid and PLI incentives, showed signs of improvement compared to the previous quarter, concerns linger over the thinness of the US pipeline in the near term. 

The company's US operations have historically been volatile, raising questions about the sustainability of its performance, the brokerage firm highlighted.

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Meanwhile, revenue growth for Dr Reddy's was primarily driven by its US generics segment, which surpassed estimates, contributing to an overall sales of Rs 7,200 crore

However, the domestic business reported muted growth, while Pharmaceutical Services and Active Ingredients (PSAI) sales saw only marginal improvement. 

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Additionally, sales in the European market increased, but currency devaluation impacted performance in Russia.

Despite achieving a stable EBITDA, Dr Reddy's reported elevated expenses, with other expenses growing by 12 per cent year-on-year (YoY) and 10 per cent quarter-on-quarter (QoQ). 

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Segment-wise, PSAI margins remained healthy, while generic margins experienced a slight decline.

During the earnings conference call, management updated on new product launches and Food and Drug Administration (FDA) observations in the US, stable price erosion in existing products, and developments in the biosimilars segment. 

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Furthermore, the company aims for double-digit growth in the domestic market and anticipates a recovery in gross margins in its generic business.

Dr Reddy's Laboratories faces a complex landscape characterised by both opportunities and challenges. While certain segments show promise, such as the US generics market, the company must address concerns surrounding its US pipeline and effectively manage costs to sustain growth momentum in the future.

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Hence, Prabhudas Lilladher analysts have maintained a 'Reduce' rating on the stock, revising the target price to Rs 5,650 per share.

As of 9:57 am, shares of the company were trading 1.07 per cent higher at Rs 5,908.55 per share.

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Published January 31st, 2024 at 10:03 IST

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