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Dr Reddy’s shares fall 5.8%, Biocon stock down 7% on weak earnings

LiveMint logoLiveMint 28-07-2017 Ravindra N. Sonavane

Mumbai: Shares of Dr Reddy’s Laboratories Ltd on Friday fell 5.8%, its steepest decline in eight months, after the company reported weaker earnings due to higher-than-expected price erosion in the US and lower contribution from domestic operations.

The stock fell 5.77%, the biggest decline since 4 November 2016, and touched a low of Rs2,470 a share in intraday. At 9.57pm, the scrip was trading at Rs2,486 on BSE, down 5.2% from previous close while India’s benchmark Sensex Index fell 0.55% to 32204.84 points.

Meanwhile, shares of Biocon Ltd fell as much as 6.9% after it reported weaker then expected earnings. Its net profit fell 51.2% to Rs81.3 crore due to weakening of the US dollar and destocking ahead of implementation of goods and services tax. Sales were down 5.9% at Rs933.7 crore on account of lower sales of small molecules and branded formulations.

Other pharma stocks were also trading lower. Sun Pharmaceuticals Industries Ltd fell 2.3%, Lupin Ltd 2.2%, Cipla Ltd 1.3%, Novartis India Ltd 2.2%, Claris Lifesciences Ltd 1.8%, Orchid Pharma 1.8% and Torrent Pharma 1.3%. BSE Healthcare Index was down 1.2%, while India’s benchmark Sensex index declined 0.5% to 32,234.38 points.

Dr Reddy’s reported 57% decline in its net profit in the June quarter to Rs66.60 crore against Rs153.50 crore a year ago. Sales rose marginally 2% to Rs3,248.90 crore. Gross margin declined 464 basis points (bps) year-on-year to 51.6% and Ebitda (earning before interest, tax, depreciation and amotization) margin fell 244 bps to 9.2%. One bps is a hundredth of a percentage point.

“Dr Reddy’s US franchise continues to reel under regulatory challenges in key facilities which has weakened launch momentum that is critical for earnings growth in the backdrop of elevated pricing and competitive pressures in the base business,” said JM Financial in a report to its investors. The brokerage firm has maintained its sell rating on the stock and revised its target price to Rs2,105 a share, down 20% from the current levels.

The company said its generic drug sales in North America declined 4% to Rs1,494.6 crore and sales in the domestic market dropped 10% to Rs468.7 crore. Its sales in emerging markets and Europe were up 34% and 28%, respectively.

“The company has one of the most valuable ANDA amongst peers, currently there is fairly limited visibility on the timing of approval of new big-ticket drugs from this pipeline. This creates significant uncertainty in terms of predicting the timing and extent of the recovery in DRL’s profitability,” said brokerage firm IDFC Securities in a report to its clients. The brokerage firm has downgraded the stock to “underperform” and reduced its target price to Rs2,400 a share, down 14.1% from the current levels.

Of the analysts tracking Dr Reddy’s, nine have a buy rating, 22 have a hold rating and 14 have a sell rating, shows Bloomberg data.

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