Q4 results were hit by one-offs, input cost inflation, US pricing pressure and seasonally lower sales in India. Reported PAT of Rs 875 m in Q4 (-75.9% y-o-y, -87.6% q-o-q) included multiple one-offs: a) provisions of Rs 983 m in SG&A related to litigation with the State of Texas; b) Rs 390 m for the sale of two non-core brands in India and Rs 1,774 m for the sale of territorial rights for two brands in Russia and CIS; and c) impairment charges of Rs 7.6 bn mainly related to PPC-06 (R&D asset) and the Shreveport plant. Adjusting for one-offs, PAT would have been Rs 5.3 bn (-1.9% y-o-y, -25.2% q-o-q).
Overall revenues of Rs 52.2 bn (+10.4% y-o-y, -1.9% q-o-q) saw the impact of elevated pricing erosion in the US base portfolio and seasonal low sales in India. Adjusted EBITDA margins at 20.2% declined 136bps y-o-y and 244bps q-o-q in Q4 on higher input costs and US pricing woes, partially offset by cost efficiencies.
Focus on improving standing in key markets: DRRD expects near-term input cost pressure to continue and it hopes to mitigate the majority of the impact through cost efficiencies. It continues to focus on global portfolio build-up, and better penetration and productivity across all key markets. It is actively evaluating strategic M&A opportunities to augment its portfolio. It hopes to sustain ‘above market’ growth for its sales in India on new launches and better productivity. It expects US pricing woes to continue and to focus on new launches. Despite quarterly variability, it hopes to sustain growth in key segments. It will host an investor day shortly to provide further updates.
Retain Buy; lower TP to Rs 4,950 (from Rs 5,685): We retain our Buy rating on DRRD, which is making consistent progress in creating a diversified business model. It remains on track for its aspirational EBITDA margin of 25% in the next 2-3 years (adjusted margins of 20.8% in FY22) on process efficiencies and operating leverage. Its calibrated R&D efforts for differentiated generics and biosimilars also support the long-term outlook. Post Q4, we adjust our estimates in line with the current outlook, mainly for near-term cost pressure, which results in EPS cuts of 3.7%/5.9% for FY23/24e. Our revised TP is Rs 4,950 (from Rs 5,685).
