Dr Reddy’s Laboratories: One Of The Best Pharma Companies In India Declines And Becomes Nifty 50’s Top Loser.

Dr Reddy’s Laboratories Ltd’s stock was the worst performer in the Nifty 50 recently, falling roughly 7% in response to the announcement of poor March quarter (Q4 FY23) earnings. Its revenue fell owing to reduced sales from gRevlimid and the US generics portfolio, resulting in a 530 bps sequential decline in its projected Ebitda margin to 25.1% for the March quarter. 

Dr Reddy’s Lab had a 52-week high of Rs 4,989 on May 5, 2023, and a 52-week low of Rs 3,789 on May 12, 2022.

Some experts believed that early prices accounted for most of the benefits for Dr Reddy’s. Before the presentation of the Q4 results, Dr Reddy’s stock had risen 15% so far this calendar year. Adjusting for numerous divestments, the core Ebitda margins came in at around 21.9%, according to Antique Stock Broking analysts. It should be noted that Dr Reddy’s introduced gRevlimid in the United States in Q2FY23, with a 180-day sales exclusivity for the 2.5 mg and 20 mg dosages. Lower revenues in the fourth quarter weighed on profits in the previous quarter.

In the US market, generic gRevlimid sales have been the most important contributors to revenue for Dr Reddy’s. However, this category suffered a setback in the current quarter, falling by half to 17% compared to Q3 and Q2 sales. The EBITDA margin was 21.7% in the March 2023 quarter, down around 8% from the previous quarter. This demonstrates the abnormally large influence of gRevlimid. According to industry pundits, the dimming of gRevlimid’s disproportionately large contribution owing to decreasing demand in the future spells pain for the corporation.

The road ahead is difficult for Dr Reddy‘s, with profit growth projected to slow in FY24 following a robust performance in FY23. Analysts are concerned that Dr Reddy’s earnings will be dragged down by the high base of FY23 and the lack of visibility of possible products over the next two years.

In fiscal year 23, it introduced 25 new goods in the United States. It has a healthy pipeline of 81 abbreviated new drug applications or ANDAs. While gRevlimid represents a huge opportunity, sales may fluctuate once the exclusive period expires. Furthermore, without gRevlimid, substantial growth might be difficult.

The future plans.

In the future, the business wants to commercialise 25-30 molecules in the fiscal year 2024, including peptides and gPentasa, gCopaxone, and gVenofer. It plans to increase its presence in gAmitiza, gNuvaring, gRemodulin, and gLexiscan. Furthermore, with China’s supply limits and the world embracing the ‘China plus one policy, Dr Reddy is poised to gain from this long-term megatrend.

JM Financial Institutional Securities Analysts predict the Mayne Pharma deal to be earnings accretive in FY24. The brokerage has accounted for the purchase in its projections. Dr Reddy’s wants to be one of India’s top five pharmaceutical corporations. Its domestic company may outperform industry growth as it follows inorganic expansion on the strength of robust cash flows. Price erosion, on the other pointer, remains a problem. In India, competition is fierce, with everyone vying for a piece of the chronic market. According to Unnati Jadhav, research analyst at Sharekhan by BNP Paribas, it may eventually lower Dr Reddy’s market share.

The company’s management anticipates dual-digit growth in all important markets in FY24. As a result, all focus will be on new product releases that generate money, sell existing commodities, and maintain quality at its facilities.

However, margin performance may be tracked. The firm believes that the competitive intensity in the US business remains high. The lack of niche-limited competition products is likely to cap its core Ebitda margins at 22-23%. Furthermore, government efforts like the product-linked incentive (PLI) plan and the creation of bulk medication parks benefit Indian pharma enterprises.

We will have to wait and watch how the stocks perform in the markets going forward.

Proofread, Edited & Published By Naveenika Chauhan