Dr Reddy's Labs continued to display volatility on Wednesday, after results were announced, in continuation of the trend witnessed on the counter yesterday ahead of results.

This can be reflected in the fact that the scrip moved between a high of Rs 881.25 and a low of Rs 851.05 since opening. At the moment, the scrip of the domestic pharmaceuticals major is lower by 2.8% to Rs 870 on BSE.

Around 30,000 Dr Reddy's Laboratories shares were recorded as volumes on BSE in just a few minutes of trading.

DRL announced Q3 results after trading hours on Tuesday. Ahead of the results, the scrip witnessed much volatility . After falling as much as 3.5% earlier during the day (on Tuesday) to Rs 869, the scrip staged a recovery to settle with a loss of just 0.5% at Rs 895.80.

The recovery on the counter from the lower levels proved shortlived with its easing off today. This, as the company's Q3 ended 31 December 2002 results fell short of expectations as far as the top line is concerned.

Dr Reddy's Laboratories reported a 5% fall in sales to Rs 374.45 crore (Rs 3.74 billion) and 42% fall in profit after tax to Rs 93.16 crore. A poll of analysts conducted by capitalmarket.com had forecast that the company would post a 34.5% to 42% fall in net profit, in the range of Rs 93.60 crore to Rs 106 crore (Rs 1.06 billion). The poll had forecast sales of Rs 441 crore (Rs 4.41 billion) to Rs 530 crore (Rs 5.3 billion).

The fall in sales for the quarter under review was primarily on account of a 32% drop to Rs 78.55 crore in generic sales . This in turn was the result of the company's exclusivity in sales of fluoxetine ending in this quarter.

The active pharmaceutical ingredients and intermediaries sales grew by 11% to Rs 168.51 crore (Rs 1.68 billion), while formulations sales climbed 11% to Rs 171.95 crore (Rs1.71 billion) over the corresponding previous quarter. The fall in sales is also attributed to the absence of drug discovery in the quarter ended 31 December 2002 as against Rs 10.81 crore earned in the corresponding previous quarter.

The provision for tax increased by 25% to Rs 11.11 crore. Further, the company also had to provide for deferred tax of Rs 3.49 crore in the quarter as against a credit of Rs 10.82 crore in the corresponding previous quarter. Together, the provision for current and deferred tax was Rs 14.60 crore in the quarter ended 31 December 2002 as against a credit of Rs 1.91 crore in the corresponding previous quarter. The resultant net profit after tax was Rs 93.16 crore in the quarter, which was 42% lower than the corresponding previous quarter.

Revenues show decent growth if one-time items are excluded. Excluding the revenues from Fluoxetine exclusivity of Rs 117.70 crore (Rs 1.17 billion) and the one-time R & D license fee income in the quarter ended 31 December 2001, revenues registered a growth of 33% over the corresponding previous quarter.

Meanwhile, in a major recent development, Novartis decided to discontinue further development of DRF 4158 (a drug licensed by DRL). However, Novartis will continue to collaborate with the company for an additional dual acting insulin sensitizer compound. Under the terms of this agreement, Novartis has the right for an additional development compound that is a dual acting insulin sensitizer. The terms and conditions of the original agreement remain unchanged. The company also intends to carry out additional pre-clinical studies to determine the appropriate development path for the molecule.

An earlier setback came in July 2002 when Novo Nordisk decided to suspend the clinical development of its dual acting insulin sensitiser Ragaglitazar (DRF 2725). The molecule was licensed out by Dr Reddy's Laboratories to Novo Nordisk in August 1998. Novo had discontinued development of DRF 2725 since tumours were seen in rats and mice after the exposure of these animals for a period of time equivalent to from between half to all of their life expectancy. Novo had said that the rat findings in the clinical trials of Ragaglitazar were not alarming, but it stopped the trials as it was unethical to continue the same.

BSE Code: 500124