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Why Dr. Reddy’s Lab shares hit 10% lower circuit today

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  • Dr. Reddy's said it's received a subpoena from the US market regulator SEC for production of documents concerning CIS (Commonwealth of Independent States) geographies

Shares of Dr. Reddy Laboratories’ hit 10% lower circuit today after reporting lower-than-expected quarterly earnings for Q1FY22 and US market regulators SEC’s subpoena of documents for CIS geographies. Dr. Reddy’s (DRL) shares plunged over 11% in Tuesday’s afternoon deals, dragging down the Nifty Pharma index that fell over 4%. The stock closed 10.4% lower at ₹4,844 per share on the BSE.

The pharma major on Tuesday reported consolidated net income of ₹570.8 crores for the quarter ended June 30, 2021, as compared to ₹594.6 crores within the corresponding quarter of the previous fiscal. The revenue during the quarter came at ₹4,919 crores, up 11% as against ₹4,417.5 crores within the year-ago period. the margin of profit was down by 380 basis points (bps) YoY at 52.2% as staple prices have gone up within the last 2 quarters whereas EBITDA margin was down 560 bps.

”The company has commenced an in-depth investigation into an anonymous complaint. The complaint alleges that healthcare professionals in Ukraine and potentially in other countries were given improper payments by or on behalf of the corporate in violation of U.S. anti-corruption laws, specifically the U.S. Foreign Corrupt Practices Act. A U.S. firm is conducting the investigation at the instruction of a committee of the Company’s Board of Directors,” DRL said within the exchange filing.

The company added that the investigation is ongoing and it’s disclosed the interest of the U.S. Department of Justice, Securities and Exchange Commission (“SEC”), and Securities Exchange Board of India.

Dr. Reddy’s further informed that it received a subpoena from the SEC for the assembly of documents concerning certain CIS (Commonwealth of Independent States) geographies, and therefore the company is within the process of responding to an equivalent.

”While the matter may end in government enforcement actions against the corporate within us and/or foreign jurisdictions, which could lead on to civil and criminal sanctions under relevant laws, the probability of such action and therefore the outcome isn’t reasonably ascertainable at this point,” the corporate added.

Commenting on the results, DRL’s Co-Chairman & MD, G V Prasad said “The financial performance of the quarter has been driven by healthy sales growth. I’m confident about improving our margins within the upcoming quarters which can be led by the size from recent launches, new product launches, and productivity.”

Avinash Gorakshkar of Profitmart Securities said that this fall in profit is especially thanks to the bad business commentary within the US markets. “This fall in Dr. Reddy’s Lab share price is especially thanks to the autumn in profit in recently ended June 2021 quarter. The market was expecting a huge rise in its profit but the corporate has reported a fall which has come as a huge disappointment for the market,” Gorakshkar added.

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