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GST implementation to drag down Q1 sales, says Dr Reddy’s

LiveMint logoLiveMint 03-07-2017 PTI

New Delhi: Drug major Dr Reddy’s Laboratories (DRL) expects the first quarter of the 2017-18 fiscal year to witness a temporary decline in sales in India due to de-stocking by trade on the implementation of the goods and services tax (GST).

The company, however, expects to grow at low double-digits in the period and for the foreseeable future in the domestic market. Overall, DRL is optimistic of delivering a better performance in 2017-18 compared to the previous one, having weathered what it called a ‘perfect storm’.

The company, which has been facing actions from the US Food and Drug Administration (USFDA) for manufacturing norms violations, said less severe pressure and more calibrated pricing in the US market along with a robust pipeline of generics would come handy during the ongoing financial year.

Despite government-induced pricing pressures on pharma products, India remains a high growth market. In 2016-17, revenues grew by 9% over the previous year, Dr Reddy’s chairman K. Satish Reddy and co-chairman G.V. Prasad said in their address to shareholders in the company’s annual report for 2016-17.

“The first quarter of FY2018 may witness a temporary decline in the sales due to de-stocking by trade on the implementation of goods and services tax (GST). Post normalisation, we expect to grow at low double-digits in FY2018 and for the foreseeable future,” they said in their letter.

On the overall performance of the company, they said: “... we are tempted to believe that your company’s performance in FY 2018 will be better than what we saw in FY 2017.”

The company has weathered a ‘perfect storm’ in the previous financial year when several negative factors came into play simultaneously. Reddy and Prasad highlighted six factors, including USFDA actions, intense competition from other generic players in the US, significant delays in approvals from USFDA and drug price control in India, which affected the company’s growth.

Commenting on the ‘bright spots’ going ahead, they said: “We believe that the pricing pressures in the US market will be less severe and more calibrated in FY2018. We also have an excellent pipeline of complex generics to be introduced to the country in FY2018, and expect to do better through this effective upgrade of our portfolio mix.”

The company also believes that there are enormous opportunities across emerging markets, and is playing actively to increase presence in these territories through complex generics and biosimilars, they added.

The company is also expecting a double-digit growth in the emerging markets.

In Russia and Commonwealth of Independent States (CIS), threats of government-induced pricing pressure remained but the markets are on a moderate upswing.

“The company is seeing greater offtake of generics and oncological biosimilars, the latter through greater hospital and institutional sales (in these markets),” they said.

In Europe, the company expects more significant growth from the continent in the years to come having striven to widen its footprint from the UK and Germany to France, Italy and Spain.

About the domestic market, they said despite the government-induced pricing pressures on pharmaceutical products, India remains a high growth market.

“In FY 2017, revenues grew by 9% over the previous year,” they added.

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