Dr. Reddy’s Predicts Higher India Drug Revenue After Expanding Sales Force

Dr. Reddy’s Laboratories Ltd. said sales in India will improve in the next two quarters after competition for painkillers and heart pills dragged revenue growth below the industry average.

Sales in India rose 6 percent to 2.94 billion rupees ($66 million) in the three months ended June 30, Dr. Reddy’s, India’s second-largest drugmaker, said in a statement yesterday. Revenue in the domestic market advanced 15 percent last financial year.

Dr. Reddy’s hired 500 sales representatives last year to beef up local sales and defend brands such as the Nise pain- relief gel, Atocor cholesterol pill and Stamlo blood-pressure drug from increased competition. The company, based in the city of Hyderabad, is working on a redeployment of staff and expanding marketing in rural areas to bolster growth, Chief Operating Officer Satish Reddy said.

“While we are not satisfied with the start of the year, we hope to recover the lost ground in the second half,” Reddy told reporters in Mumbai late yesterday.

Dr. Reddy’s stock rating was lowered to “sell” from “hold” by Sushant Dalmia, a pharmaceuticals analyst at PINC Infinity.com Financial Services in Mumbai, who cited the “continuous dismal performance” of the company’s domestic formulation business.

Of 19 analysts to make recommendations on the shares since Dr. Reddy’s reported first-quarter earnings yesterday, 12 advise investors to buy, 3 recommend holding and 4 suggest selling the stock.

Dr. Reddy’s dropped 1.7 percent to 1,539.85 rupees at the close of Mumbai trading. The shares have fallen 3.7 percent since July 19, the biggest two-day slide in 11 weeks. India’s benchmark Sensitive index decreased 0.4 percent today.

Estimates Missed

Net income rose 25 percent from a year earlier to 2.63 billion rupees in the three months ended June 30, missing the 2.68 billion-rupee median of 14 analyst estimates compiled by Bloomberg. Revenue increased 18 percent to 19.8 billion rupees.

“Business performance in the quarter is a mixed bag,” Saion Mukherjee and Aditya Khemka, health-care analysts with Nomura Securities in Mumbai, wrote in a note to clients yesterday. “We see significant issues with execution and believe growth could remain below average market rates in the near term.”

Sales of Nise, which accounts for about 6 percent of Dr. Reddy’s domestic revenue, fell by 25 percent in the first quarter from a year earlier, Mukherjee and Khemka said. Stamlo sales increased 2 percent, and sales of Omez, for gastric reflux, gained 5 percent, they said.

Monthly sales in India have been increasing at a slower pace than the industry average for each of the past 12 months, according to a July 19 report by Edelweiss Securities Ltd.

Dr. Reddy’s expanded workforce gives the drugmaker about 3,800 sales representatives in the domestic market, Satish Reddy said. The company is looking to expand its presence in medicines that can be bought without a prescription, and is continuing to seek brands in Russia, Chief Financial Officer Umang Vohra said.

“India is a volume-driven market, and Reddy’s primary brands are not growing fast enough,” Priti Arora, a pharmaceutical analyst at Kotak Institutional Equities, said yesterday in an interview. “Just launching new drugs and pushing sales representatives harder isn’t just going to make things better.”

To contact the reporters on this story: Adi Narayan in Mumbai at anarayan8@bloomberg.net; Sharang Limaye in Mumbai at slimaye@bloomberg.net

To contact the editor responsible for this story: Jason Gale at j.gale@bloomberg.net

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