Pharma industry giant, Dr. Reddy’s Labs declared its Q1 results yesterday. Revenues for the company grew 11.4% YoY to Rs 4920 crores, however, change in product mix led to gross margin contraction by 3.8% YoY to 52.2%. EBITDA margins though were more severely impacted by 6.9% YoY to 18.3% on account of higher selling and general administration expenses.
EBITDA declined 19% YoY to Rs 900 crores and profit after tax declined at a lower rate of 2% YoY due to lower rates of tax.
Dr. Reddy’s has delivered a miss on earnings in Q1FY22. The tepid performance was led by higher price erosion in North America sales, reduced export benefit and higher inventory provisions. There was also increased working capital requirements due to higher inventory and receivables.
Motilal Oswal has reduced its EPS targets for the company by 4% each in FY22 and FY23 with a target price of Rs 5200 and a neutral stance. ICICI securities too expects a 6-9% increase in earnings and an expansion of 440bps in EBITDA margins. ICICI securities though, maintains an add rating on the stock with a price of 5,395 a piece at 25 times FY23E EPS. Key downside risks for the stock continue to be delay in launching new products and regulatory approvals.
The stock has given a return of 9.77% in the last 12 months, -3.2% in the last 6months, -6.41% in the last 3months and -12.66% in the last month. The stock is down nearly 13% in the last two trading sessions with hugely increased volumes.
