Dr Reddy’s Laboratories disappointed the Street with its Q1 results, mainly due to losses in its Venezuela and US businesses. In the US, the company has been facing stiff competition and price erosion. Speaking to Bloomberg TV India , DRL CFO Saumen Chakraborty says new launches of molecules and products will bolster sales in the US.
DRL is hoping that Q2 earnings will be better than that of Q1. But on a year-on-year basis, there could be a decline, he said. Excerpts:
We had alluded to a decline in performance in both Q1 and Q2 compared with that of the previous year. But probably the magnitude was not assessed well.
Basically, the decline in sales is more than ₹500 crore year-on-year. One-third of it is out of Venezuela because we were without any cash — we were not able to sell anything in Venezuela. Even though there were some purchase orders in hand, we are holding on to the dispatch till we get the cash.
And the other major reason for loss is that there have been no new launches in the US. And competition has increased in case of major molecules that were doing very well for us.
Also, the price decrease has also been sharper. With more competition, the market share has also dropped.
Omeprazole is the only molecule where we were able to increase our market share, around 15 per cent. But otherwise, there has been a price and volume erosion in the US market and that has impacted the profits.
What is your outlook for the US market?
If the US sales have to grow well, it has to be on the back of new launches. There was no new launch in the first quarter. In the second quarter in July we have launched one molecule. May be a couple of more launches could happened in Q2.
But in the second half, where there are really a good number of launches lined up. As new product launches happen, we will get back not only good sales but also good margins. So we are hoping that Q2 will be better than Q1.
But on a year-on-year basis, there could be a decline in performance. But the second half is when we expect to grow. The extent to which the growth in the second half will offset the decline in the first half will determine the FY17 performance.
You had received warning letters for three of your facilities. Can you update us on the progress made on the remediation?
Most of the remediation has been done. The cost of remediation, which was there in the previous quarter as well as in Q1, will now come down significantly in Q2. And in terms of the re-inspection, it depends on when the USFDA will like to do it. As far as we are concerned, we are sending a request to the USFDA to do the inspection.
How has it impacted the production dispatches from the three facilities?
The production is on. But it is not in full swing. We have orders in hands, but are not able to dispatch fully. We will keep on improving.