Dr Reddy’s Laboratories suffered a decline in net profit by 34 per cent for the first quarter ended June 30, 2003, to Rs 79.2 crore from Rs 119.4 crore in the corresponding period last year, despite having registered a marginal growth of 6.15 per cent in total revenue from Rs 453.3 crore to Rs 481.2 crore. The increase in R&D expenditure, selling, general & administration (SG&A) costs are said to be the main reasons for the dip in profit despite the revenue growth.

According to a company statement, Dr Reddy’s was the first Indian company to adopt the fair value recognition provisions of Accounting for Stock-based compensation under US GAAP. This had resulted in recognising a non-cash compensation cost of Rs 2.04 crore for the quarter.

The R&D expenditure increased to Rs 32.6 crore from Rs 20.7 crore. In terms of percentage, R&D expenditure is now at 6.8 per cent of the total revenue as against 4.6 per cent in the previous year. “ The increase in R&D expenditure is primarily due to higher number of bio-studies in the generics business and higher development activity in APIs and CCS (custom chemical synthesis),” the company statement said. However, this should be seen as investments with long-term potential for benefit.

Similarly, selling, general and administration expenses increased to Rs 146.4 crore from Rs 96.6 crore. The SG&A expenses as a percentage of total revenue increased to 30 per cent compared to 21 per cent in the corresponding quarter. This increase was attributed to the increase in legal and consultancy charges, employee cost and marketing expenses.

The branded formulations sale recorded a growth of 16 per cent at Rs 182.2 crore (Rs 156.6 crore), the domestic market contributing Rs 120.2 crore and the international market bringing in Rs 62 crore. The growth in international market was primarily driven by the company’s performance in Russia and other CIS markets. The generics market brought in Rs 119.8 crore (Rs 107 crore), registering a 12 per cent growth, while the API segment suffered a decline of 6 per cent at Rs 165.5 crore (Rs 175.3 crore).

According to the company, the gross margin on total revenues remained unchanged at 55 per cent, which was driven by the overall business and product mix.