Dr Reddy’s operating profit margin improved by 3.4 percentage points to 23.7 per cent in the June quarter, compared with the year-ago period. This is despite a 3.5-percentage-point rise in research spend, as a proportion of sales, to 11 per cent.
The improvement in profitability was mainly due to three factors.
One, a favourable revenue mix due to healthy growth in high margin geographies such as the US and India aided margins. Sustained growth in sales of limited competition injectable drugs such as decitabine, market share gain in key products such as metoprolol succinate, and rupee weakness against the US dollar all boosted Dr Reddy’s sales in the US.
The company launched four products during the quarter and has 70 products pending regulatory approval.
New product approvals will continue to support growth in this market, but price erosion due to higher competition is a risk. Dr Reddy’s also managed to clock double-digit sales growth in the home market for the second consecutive quarter. .
Next, moderation in operating costs such as selling and administrative expenses (as a proportion of the total revenues) also aided profitability.
Finally, a decline in contribution from the low margin Pharmaceutical Services and Active Ingredients business boosted the company’s operating margin.
A strong operating performance enabled Dr Reddy’s grow its June quarter net profit over 55 per cent year-on-year.
This was achieved despite higher tax outgo for the company – the tax rate increased to 21.6 per cent from 12.9 per cent a year back.