In a docile market today, the stock of Dr Reddy’s gained almost 4 per cent. This was thanks to the company's better-than-expected performance in the December quarter. On the high base of December 2013 quarter – which saw the full benefit of several limited competition launches - the company managed to grow its U.S. business by 4 per cent. This was helped by sustained revenue from low-competition drugs such as decitabine and azacitidine, launch of six more drugs in the geography and market share gains in other key products such as ziprasidone.
Back home, Dr Reddy’s held on to its double digit growth pace; domestic revenue grew 10.6 per cent year-on-year in the December quarter. Similarly, in Russia and CIS region, the company managed healthy double digit growth (27 per cent) in constant currency terms bucking the slowdown in the region’s economic activity. The 10 per cent decline in the revenue from this region in rupee terms was due to the rouble's depreciation.
Gross margin was expected to take a sharp hit in the December quarter due to the rouble depreciation and high-base effect in the U.S. That the company was able to restrict the fall in gross profit margin at 2.4 percentage points is commendable.
The 10 per cent decline in operating profit was largely on account of higher research spend. As a percentage of revenue, the research and development spend rose by 2.8 percentage points to 11.2 per cent in the December 2014 quarter.
The company’s investment in building a pipeline of low-competition drugs, particularly for the US market, is expected to pay off over the next two to three years. Currently, 68 products of the company are awaiting approval from the US drug regulator. Of these, Dr Reddy’s is possibly the first generic filer in 13 drugs on which the company may be entitled to exclusive selling rights for 180 days.