Why did Dr. Reddy’s Laboratories’ stock drop 10% today?

Dr. Reddy Laboratories’ stock fell 10% today after the company reported lower-than-expected quarterly results for Q1FY22 and the US Securities and Exchange Commission subpoenaed records for CIS geographies. In Tuesday’s afternoon trading, Dr. Reddy’s (DRL) shares plummeted over 11%, pulling down the Nifty Pharma index, which lost over 4%. On the BSE, the stock finished 10.4 percent down at 4,844 per share.

The pharma company recorded a total net profit of 570.8 crores for the quarter ended June 30, 2021, down from 594.6 crores in the previous fiscal’s equivalent period. The revenue for the quarter was 4,919 crore, up 11% from the previous quarter’s figure of 4,417.5 crores. Because raw material costs have increased in the previous two quarters, gross margin was down 380 basis points (bps) to 52.2 percent, while EBITDA margin was down 560 bps.

“A comprehensive inquiry into an anonymous allegation has been launched by the firm.” According to the lawsuit, the Company paid illegal payments to healthcare professionals in Ukraine and perhaps other countries in violation of US anti-corruption legislation, notably the US Foreign Corrupt Practices Act. The inquiry is being carried out at the request of a committee of the Company’s Board of Directors,” DRL stated in the exchange statement.

The inquiry is still underway, according to the business, which has informed the US Department of Justice, the Securities and Exchange Commission (“SEC”), and the Securities Exchange Board of India.

Dr. Reddy’s also stated that it has received a subpoena from the Securities and Exchange Commission (SEC) for the production of records related to specific ClS (Commonwealth of Independent States) regions, which it is currently responding to.

“While the matter may result in government enforcement actions against the company in the United States and/or other jurisdictions, which could result in civil and criminal sanctions under relevant laws, the likelihood of such action and its outcome are not reasonably ascertainable at this time,” the company added.

G V Prasad, DRL’s Co-Chairman and MD, commented on the findings, saying, “The financial success of the quarter has been driven by robust sales growth.” In the next quarters, I am optimistic about strengthening our margins, which will be aided by the scaling up of current launches, new product launches, and productivity.”

Profitmart Securities’ Avinash Gorakshkar explained that the drop in earnings is mostly due to negative business comments in the US markets. “The current drop in the share price of Dr. Reddy’s Lab is mostly attributable to a drop in earnings in the just-concluded June 2021 quarter. The market was anticipating a significant increase in profit, but the firm reported a drop, which has disappointed the market,” Gorakshkar remarked.

In Tuesday’s session, other pharma companies such as Aurobindo Pharma, Alembic Pharma, and Sun Pharma also dropped dramatically in the region of 4-10 percent.