Earnings Outlook
Muted US sales may weigh on Dr Reddy's Jul-Sept show
This story was originally published at 13:43 IST on 15 October 2024
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By Narayana Krishna
HYDERABAD - Muted sales due to lack of meaningful launches in the US, the world's largest generics market, are likely to impact the earnings of Dr. Reddy's Laboratories Ltd. for the September quarter, analysts said. Despite continued gains in market share for its blockbuster generic cancer drug Revlimid in the US, the Hyderabad-based drugmaker's net profit for Jul-Sept is likely to see a year-on-year decline of 3% at INR 14.4 billion, according to the average of the estimates of 13 brokerage houses.
Revenue for the quarter is seen increasing 13% on year to INR 77.8 billion, the estimates show. For Jul-Sept last year, Dr Reddy's reported a net profit of INR 14.8 billion on revenue of INR 69 billion. Sequentially, Dr. Reddy's net profit for Jul-Sept is seen up 4%, while the revenue is seen rising 1%, according to the estimates; for Apr-Jun, the company reported a net profit of INR 13.9 billion on revenue of INR 76.9 billion.
Estimates for Dr. Reddy's Jul-Sept net profit ranged from INR 13.2 billion by HDFC Securities to Elara Securities' forecast of INR 17.4 billion. The estimates for revenue ranged from INR 75.8 billion by HDFC Securities to INR 80.7 billion by Elara Securities.
NORTH AMERICA SHOW
The North America market, with a large majority accounted for by the US, is the key region for Dr Reddy's. It accounts for nearly half the company's total sales and the company may see muted numbers from this market, analysts said.
Brokerages Antique Stock Broking, HDFC Securities, and Kotak Institutional Equities expect Dr Reddy's to post weak numbers for the quarter due to lack of any major limited competition drugs other than cancer drug generic Revlimid. However, Motilal Oswal has a different view, expecting 15% on-year sales growth led by market share gains for some existing products and volume growth.
Analysts expect Dr. Reddy’s US business to be supported by solid contributions from Revlimid, with estimates for its sales ranging between $125 million and $130 million, according to Axis Securities, Kotak Institutional Equities, and others.
The overall US base business is projected to remain steady, with revenues anticipated at $285 million-$330 million, as noted by HDFC Securities and Kotak Institutional Equities. Some analysts foresee a slight quarter-on-quarter decline in the base business, while Nuvama Wealth expects strong contributions from generic Revlimid to drive the total US revenue up to about $419 million.
INDIA GROWTH
Analysts expect Dr Reddy's India sales to have seen robust growth in Jul-Sept, with projections ranging from 13% to 19% year-on-year. Systematix Research anticipates double-digit growth, benefiting from a new agreement with Sanofi Healthcare for its vaccine portfolio, which was signed in March. HDFC Securities and Kotak Institutional Equities forecast growth of 13% and 14%, respectively, driven by the acquired vaccine business and in-licensing deals with Sanofi and Bayer.
Motilal Oswal projects a 15% increase, citing traction in the pain and dermatology segments and new launches. Nuvama Wealth expects a high of 19%, supported by organic growth and about INR 1 billion from the vaccine business. PhillipCapital estimates 15% growth, emphasising the impact of Sanofi vaccine in-licensing and a joint venture with Nestle Healthcare. Overall, the consensus indicates strong momentum for Dr. Reddy's sales in India.
OTHER REGIONS
Kotak Institutional Equities expects Dr Reddy's sales in Europe and Russia to see 6% and 2% on-year growth, respectively, while rest-of-the-world sales are seen up 12%. The brokerage expects the pharmaceutical services and active ingredients segment to post 16% on-year growth in revenues.
However, Motilal Oswal is negative on sales in Russia and the Commonwealth of Independent States region. It expects these to be lower by 4% on year at INR 7.7 billion, primarily due to unfavourable currency movement. Russia and the CIS region are one of the key markets for Dr Reddy's, contributing significantly to margins. Nuvama Wealth expects the emerging markets and pharmaceutical services and active ingredients segment to grow 5% and 8% on year, respectively.
MARGIN PRESSURE
Dr Reddy's may see pressure on its earnings before interest, tax, depreciation and amortisation, or EBITDA, margin for the September quarter on account of higher spending on research and development, analysts said.
Analysts' estimates for Dr Reddy's Jul-Sept margins were in the range of 27.1% to 28.0%, a contraction of 140-300 basis points on year. The average of the estimates of 12 brokerages pegged the company’s September quarter EBITDA at INR 21.99 billion.
The drugmaker is scheduled to detail its Jul-Sept earnings on Nov. 5. The key factors to watch out for by market participants would be commentary on the US business outlook, Revlimid's future contribution, the launch pipeline, and the benefits of deals with Sanofi and Nestle India.
Following are the Jul-Sept earnings estimates for Dr Reddy's Laboratories Ltd based on reports compiled by Informist from 13 brokerage houses:
|
Brokerage firm |
Net sales |
Net profit |
EBITDA |
|
-------(In INR million)------- |
|||
|
Antique Stock Broking Ltd |
77,789.00 |
14,196.00 |
21,268.00 |
|
Axis Securities Ltd |
78,400.00 |
14,000.00 |
21,580.00 |
|
Elara Securities (India) Pvt Ltd |
80,692.00 |
17,414.00 |
25,400.00 |
|
HDFC Securities Ltd |
75,792.00 |
13,191.00 |
20,691.00 |
|
Kotak Institutional Equities |
78,540.00 |
14,425.00 |
22,200.00 |
|
Motilal Oswal Financial Services Ltd |
78,142.00 |
14,236.00 |
21,723.00 |
|
Nomura Equity Research |
77,414.00 |
15,431.00 |
23,276.00 |
|
Nuvama Wealth Management Ltd |
75,946.00 |
14,035.00 |
21,548.00 |
|
PhillipCapital (India) Pvt Ltd |
78,029.00 |
13,563.00 |
21,178.00 |
|
Prabhudas Lilladher Pvt Ltd |
78,313.00 |
14,073.00 |
21,189.00 |
|
Sharekhan Ltd |
78,190.00 |
14,250.00 |
---- |
|
Systematix Shares and Stocks (India) Ltd |
78,011.00 |
15,102.00 |
22,922.00 |
|
YES Securities (India) Ltd |
76,006.00 |
13,746.00 |
20,876.00 |
|
Average |
77,789.54 |
14,435.54 |
21,987.58 |
At 1237 IST, shares of Dr Reddy's Laboratories Ltd. were at INR 6,618.60 on the National Stock Exchange, down 0.6% from the previous close. End
US$1 = INR 84.07
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Avishek Dutta
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