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New launches to drive growth in second quarter: Dr Reddy’s

Fourth quarter earnings of Dr Reddy’s Labs were hurt by one-time Venezuela write-offs.

The drug major’s net profit fell 86 percent at Rs 74.6 crore in January-March quarter from Rs 518.9 crore in corresponding quarter last fiscal.

Its total income also slipped 3 percent to Rs 3756.2 crore against Rs 3870.4 crore in year-ago period. Write-offs on account of Venezuela stood at Rs 430.9 crore. 

GV Prasad, CEO, the pharma, said the base business continues to be driven by the injectibles business. He is hopeful that Q2 will see improvement in growth on the back of new launches lined up. 

The pharma company received observations from the US Food and Drug Administration (FDA) for one of its active pharmaceutical ingredients (APIs) plants in Srikakulam district of Andhra Pradesh. Prasad said. 

Prasad said there are approvals pending, but not from its Srikakulam plant. But he admitted that improving quality checks at its plants would be a high priority. 

Saumen Chakrabarty, CFO, Dr Reddy’s, said despite the Venuezuela write-offs, there are still opportunities in that country. 

Below is the transcript of GV Prasad and Saumen Chakraborty\’s interview with CNBC-TV18\’s Ekta Batra.

Q: US slowed down this quarter versus Q3, what is your outlook on the base business in the US? We have seen competition for the likes of key drugs such as Valcyte, where do you expect the US business to settle, what is your outlook on the base business?

Prasad: The base business continues to be driven by our performance in the injectible business. Valcyte will face significant competition as we go forward. We also have a number of launches awaiting approval. We believe that approvals will start coming Q2 onwards. So, that should drive growth.

In many of our products we have high market share, high margins and they continue to be so. So, we feel while some products will face increased competition there is significant opportunity in that market and it continues to be a high performance market for us.

Q: US approvals are linked to USFDA issues as well. So, what is the outlook on the USFDA issues, where does the resolution status stand for the three plants especially Srikakulam?

Prasad: We have approvals with APIs not from these two plants and hence some approvals will start coming in. They are not completely or entirely dependent on resolving the warning letter issues. Having said that it is a very high priority for us to complete our remediation effort, complete our quality improvement programme and ensure that the warning letter impact is lifted and we start seeing approvals. We are somewhere midway in that journey, we have done enormous amount of work for remediation as well as upgradation. In the next few months we should complete all the work and enter a phase of sustainability and that is the time when we will approach the FDA to inspect our facilities.

Q: How much was the write-off taken due to the Venezuela operations and can we expect further write-offs? What is the status of your operations in Venezuela?

Chakraborty: Venezuela we constrained our operations ourselves because of lack of repatriation but there are opportunities there which we are still persisting. However we will dispatch only when we get repatriation. So, we thought it is good to take the hit in our balance sheet in terms of cash which is lying in our Venezuela subsidiary. Instead of translating in the official preferential rate we thought better to get it in official market rate.