Dr Reddy’s Labs reported a tepid 3.5 per cent year-on-year growth in revenues for the December quarter on account of 17 per cent decline in US revenues. This was due to one-off profit share of $99 million (Rs 535 crore) recognised during the same quarter last year, for supply of generic Olanzapine in the US. Adjusting for this, the company’s base business revenues grew 23 per cent for the quarter.

Gross margins were lower by 7.2 percentage points in the December quarter (52.7 per cent) due to superior margins for Olanzapine supplies made in the same quarter last year. This, in addition to higher research and development expenses (34 per cent year-on-year increase) led to 10.9 per cent decline in operating margins.

The company is currently investing in building a differentiated product pipeline of complex, unique products such as peptides and complex injectables in addition to innovative molecules. Dr Reddy’s is scaling down presence in low-margin tender business in Germany. While these initiatives may pay off in the medium term, approval delays by Food and Drug Administration (FDA) may lead to postponement of revenues in the near term.

SBI: Lingering asset quality concerns

SBI reported disappointing results, slipping on asset quality, leading to higher provisioning and lower than expected earnings. The bank’s net profit grew 4 per cent year-on-year to Rs 3,396 crore. Net interest income (NII) declined by 3 per cent while non-interest income increased 76 per cent year-on-year primarily due to higher trading gains. Domestic net interest margins (NIM) fell 78 basis points to 3.63 per cent year-on year, due to lower yield on assets and high cost deposits. The management continues to maintain a stable margin outlook of 3.7 per cent (domestic).

Gross non performing assets (GNPAs) deteriorated to 5.3 per cent in the December quarter as against 5.15 per cent in the September period. Fresh slippages amounted to Rs 8,175 crore during the quarter. Deterioration in GNPAs was led by increased stress in the mid-corporate segment.

The bank’s restructured loans stood at Rs 34,783 cr. However, after implementation of the Mahapatra Committee's recommendations, the bank upgraded Rs 12,259 crore of loans from the restructured to standard category (accounts performing satisfactorily for two years). This lowered standard restructured assets to 2.4 per cent of the loan book from 3.54 per cent in the September quarter. Nonetheless, increase in fresh slippages and asset restructuring is indicative of continued pressure on asset quality.

GAIL: Good show despite poor volumes

Gas transmission major GAIL’s 18 per cent profit growth in the December quarter over the same period last year was enabled by the company’s LPG and hydrocarbon trading, and petrochemicals businesses. A more than seven-fold rise in ‘other income’ also aided profits. This more than compensated the weakness in the mainstay transmission and gas trading segments, and a 31 per cent increase in its subsidy burden to Rs 700 crore. The company also benefited from an adjustment of around Rs 86 crore pertaining to excess subsidy in the earlier quarter. After a poor performance in the September quarter, GAIL’s good show saw the stock gain over 4 per cent from its weekly low.

The petrochemical business benefited from volume growth of more than 13 per cent. Strong pricing power seems to have helped LPG and hydrocarbon sales growth of over 32 per cent, despite a 6 per cent dip in volumes. Volumes also fell in the gas transmission, LPG transmission and gas trading segments.

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