Dr Reddy’s stock tanks even as Q1 revenue rises

The Dr Reddy's Laboratories stock plunged nearly 14 percent on the Bombay Stock Exchange (BSE) after it announced its financial results for the first quarter of fiscal year 2022 (FY 2022). Its stock also dropped 12.4 percent on the New York Stock Exchange.

More than the 1.5 percent dip in quarterly profits compared to a year ago, the stock fell after Dr Reddy's Laboratories (DRL) disclosed an anonymous complaint, which alleges that it has violated US anti-corruption laws.

DRL disclosed the complaint in its stock exchange filing: "Healthcare professionals in Ukraine and potentially in other countries were provided with improper payments by or on behalf of the company."

The company said that while the complaint could result in government enforcement actions against DRL, it is yet to ascertain the probability of such an outcome. "The investigation is ongoing," the company said.

In the first quarter ended June 2021, DRL reported consolidated revenue of Rs 4,919 crore, up 11.4 percent over the same quarter last year. On a sequential basis, it rose 4 percent.

"The financial performance of the quarter has been driven by healthy sales growth," said GV Prasad, Co-Chairman and Managing Director, in the stock exchange filing.

Product launches and scaling-up of recent launches will help improve margins in the coming quarters, he added.

The company reported an operating margin of 20.7 percent in the June 2021 quarter, down 310 basis points sequentially, owing to increased competition and price erosion. It was also 560 basis points lower than the operating margin a year ago.

"We are also conducting pilots in areas such as nutrition, direct-to-customer, and digital health and wellness, which can be future growth drivers," Prasad added in an exchange filing.

The pharma company’s global generics business contributed to over 83.5 percent of the company's revenue in the latest quarter at Rs 4,111.3 crore, up from 79.4 percent contribution a year ago. The segment grew 17.2 percent annually, and 6 percent sequentially.

North America contributed the most (Rs 1,739 crore) to the global generics business. However, it grew by 1 percent annually, and declined 1 percent sequentially.

India, with Rs 1,060 crore contribution to the global generics' segment, saw an annual growth of 69 percent from Rs 626 crore in June last year. On a sequential basis, the growth was 26 percent from Rs 884.5 crore in the March 2021 quarter.

In the accompanying notes to the results, the company reminded shareholders that it had experienced a cybersecurity incident related to ransomware on October 22 last year. "Based on our forensic investigation, no evidence was found of any data breaches leading to personally identifiable information," DRL said in its stock exchange filing.