Dr. Reddy’s Q1 net slides 36% on impairment charge


Drugmaker sets aside Rs. 193 crore after losing U. S. arbitration case

Pharma major Dr. Reddy’s Laboratories on Tuesday reported that the first-quarter consolidated net profit declined by 36% to Rs.380.4 crore, from Rs.594.6 crore in the earlier period of the year.

Revenue from operations rose almost by 12% to Rs.4,945.1 Crore in the three months ending in June (Rs.4,426.5 crore), with net sales also increasing by a similar extent to Rs.4,826.2 crore (Rs.4,324.4 crore).

Total income at Rs.5,053 crore (Rs.4,513.6 crore) was an increase of almost 12%, according to the results prepared as per Indian Accounting Standards (Ind A. S).

Profit was weighed down by the recognition, during the quarter, of an additional expense of Rs.193 crore in the wake of the drugmaker losing an arbitration award in the U.S. under which one of the company’s subsidiaries was required to pay 46.25 million U. S. Dollars (Rs.340.1 Crore) to Hatchtech Pty Limited.

“As the company was carrying 20 million U. S. Dollars (Rs.147.1 Crore) as provision towards this litigation, an additional expense of 26.25 million U. S. Dollars (Rs.193 Crore), comprising 25 million U. S. Dollars (Rs.183.8 Crore) as impairment and 1.25 million U. S. Dollars (Rs.9.2 crore) as other expenses was recognised during the three months ended June 30,” the company said in the notes accompanying the results.

However, under results prepared as per the International Financial Reporting Standards (I. F. R. S), the company reported a net profit of Rs.570.8 Crore (Rs.579.3 Crore), with Rs.191.1 Crore additional charges related to the arbitration award being recognised by the company as an adjustment to the financial statements for 2020-21.

Co-Chairman and M. D. Mr. G.V. Prasad said the first quarter’s financial performance had been driven by “healthy sales growth”.

“I am confident about improving our margins in the upcoming quarters which will be led by the scale-up of recent launches, new product launches, and productivity. While we continue to sharpen execution in our core business, we are also conducting pilots in areas such as Nutrition, Direct-to-Customer, and Digital Health and Wellness, which can be future growth drivers,” he said in a statement.

The mainstay Global Generics dominated segment revenue with Rs.4,125.1 Crore (Rs.3,509.2 Crore) even as Pharmaceutical Services and Active Ingredients (P. S. A. I) revenue declined to Rs.898 Crore (Rs.1,016.5 Crore).

Dr. Reddy’s said the growth in Global Generics was driven primarily by branded markets (India and Emerging Markets) and Europe. “The overall growth was on account of new product launches and volume traction in the base business, partly offset by price erosion in some of our products and adverse forex rates,” the company said. “The growth in the all-important North American market was flat, year-on-year, driven by the launch of new products and increase in volumes of certain of our existing products, which was offset by price erosion in some molecules and adverse forex rates.”

The company attributed the decline in P. S. A. I revenue to a decrease in both sales volumes as well as prices of existing products, which was partially offset by new product introductions.


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