Dr Reddy’s Laboratories Ltd’s recovery is on a better footing, with sales improving across all geographies. That seems to have delivered a spring in its stock soon after the results, with gains of about 5% on Monday. Investors seem to be looking beyond the net loss numbers that Dr Reddy’s Laboratories reported in October-December (Q3) due to a one-off impairment charge.

Overall revenues in Q3 rose 14% year-on-year with decent growth coming from the US and Indian markets. Sequentially, however, revenues fell 9% as the company recognized revenues of ₹720 crore from out-licensing two products.

While the price erosion in the US still remains, Dr Reddy’s reported a steady 8% y-o-y revenue growth in the US market. Dr Reddy’s launched five new drugs during the quarter in the US market, where new launches are becoming more critical for growth.

In fact, Dr Reddy’s is beefing up its US presence. It has a pipeline of about 101 generic filings for approval. Among this, the firm reckons it has ‘first to file’ status for 32 generics, which will give it a head start in the competitive US market.

Another positive this quarter has been domestic market growth where volumes are beginning to increase. Revenues from India grew 13% y-o-y in Q3. Dr Reddy’s has reported decent growth in domestic categories.

In fact, demand for drugs has been rising across the globe which can be seen from the strong overall global sales. Russia, for instance, saw a growth of 20% y-o-y, while emerging markets expanded 12% y-o-y.

However, the firm had to take an impairment charge on account of price erosion in the generic version of Nuvaring, which has seen the firm take a hit of about ₹1,100 crore. Additional impairment charges of ₹210 crore, has meant that the company reported a loss at the net level. In fact, reported losses stood at ₹569 crore in Q3.

Still, the market is not too worried. Revenue growth is driving operating leverage. Ebitda (earnings before interest, tax, depreciation and amortization) margin improved to 24.5% in Q3, up from about 18% in the year-ago quarter. Analysts seem to be sanguine about the prospects, given that global and domestic growth is seen picking up pace.



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