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Dr Reddy's to keep cutting China dependence; logistics hurdles hurt India sales

Sharing the numbers and providing details of the business, The NYSE-listed firm's co-chairman and MD, G V Prasad, CEO Erez Israeli and President and CFO Saumen Chakraborty set up a zoom meeting

twitter-logoE Kumar Sharma | May 20, 2020 | Updated 21:04 IST
Dr Reddy's to keep cutting China dependence; logistics hurdles hurt India sales
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Hyderabad-headquartered pharma major Dr Reddy's posted good set of numbers beating analyst expectations for the fourth quarter of financial year 2019-20. The company posted its highest ever sales and EBITDA in a year, according to its filings to exchanges.

The profit after tax saw a growth of 76 per cent year-on-year in Q4 and 4 per cent y-o-y for the entire FY20. Revenues  jumped by 10 per cent y-o-y in Q4 and 13 per cent y-o-y for FY20. The EBITDA recorded a 14 per cent and 36 per cent year-on-year growth in Q4 and for the full financial year, respectively.

Sharing the numbers and providing details of the business, The NYSE-listed firm's co-chairman and MD, G V Prasad, CEO Erez Israeli and President and CFO Saumen Chakraborty set up a zoom meeting.

The top executives said that Dr Reddy's stated plans to tap the Chinese markets for sales will remain unchanged. However, in terms of dependence on Chinese inputs to make medicines, co-chairman and MD, G V Prasad says: "We have always tried to reduce our dependence on Chinese inputs for a couple of reasons. One being that the China has been increasing the prices over the last few years. Now, we get the inputs in-house or look to Indian sources for some of it. Overtime, we intend to bring in more products in-house through vertical integration. So, our dependence on China is not that critical. There are some products that we still source but they are available widely."

On the expected impact of coronavirus lockdown on the pharmaceutical industry, he says: "In the last two months, very few patients met their doctors. So, there could be some impact on primary demand. Globally, we have to see how economies will get disrupted. It may impact demand for pharmaceuticals but to a lesser extent as these are essential products."

The company posted good set of numbers in terms of business growth in the US and part of it was also driven by demand arising out of need to stock up medicines and panic buying and from new product launches, though the breakup in terms of contribution to revenues was not shared.

On the reasons for the last quarter seeing a slippage in the India sales, Chakraborty says, it has been due to logistical challenges following disruptions on account of COVID-19-led lockdown.  However, he highlights that the Indian market has seen a good year-on-year growth driven by improved realisations in base business, volume traction and new product launches.

The company launched  a new product in India in the fourth quarter including 21 new launches it did in FY21. The senior leaders, however, refrained from sharing details on the plans and the net impact of the Wockhardt portfolio it acquired in February this year.   Wockhardt's select divisions of branded generics business in India and a few other international territories of Nepal, Sri Lanka, Bhutan and Maldives amount for a consideration of Rs 1,850 crore. It is a deal that analysts say is in line with the Dr Reddy's stated goal of growing its presence in the Indian market. It is expected to strengthen its focus on acute therapeutic area, that is, sudden onset ailments such as cough, cold and some types of pains etc.

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