Dr Reddy’s has plummeted 29.81% on BSE since November 4, 2015, which has brought an erosion of Rs. 20,884.47 crore in its Mcap.
But, what if the fire’s spread downhill too? Shareholders of Dr. Reddy’s Laboratories face a similar predicament, with the stock continuing to bleed at home and overseas as well.
Last year in November, the Director of the Food and Drug Administration’s Center for Drug Evaluation and Research had issued a Warning Letter
Ever since the USFDA warning - about inadequate quality controls in A.P and Telangana - was issued to the India’s second largest drug maker on November 4 last year, the sharp fall in the stock price has wiped off nearly US$ 7 billion from the drug major’s market capitalization (Mcap), on both the Bombay Stock Exchange (US$3.11 billion) and the New York Stock Exchange (US$7.5 billion).
G V Prasad, CEO of Dr. Reddy’s had remarked on the receipt of the USFDA warning, “We take quality and compliance matters seriously and stand by our commitment to fully comply with the cGMP quality standards across all of our facilities. We will respond with a comprehensive plan to address these observations within the stipulated time-frame of 15 days.” In the 3rd week of February 2016, the company announced that it has completed its comprehensive corrective and preventive action plan (CAPA) with regards to the FDA Warning Letter is awaiting a response from the US drug regulator.
However, there was little effect of this damage control on the stock market performance both on BSE and NYSE:
Skidding on Home Pitch
Dr Reddy’s has plummeted 29.81% on BSE since November 4, 2015, which has brought an erosion of Rs. 20,884.47 crore in its Mcap. Taking the average price of one US dollar at 67.14, the Mcap fall in dollar stands at US$ 3.11 billion. It is pertinent to note that on November 6 last year Dr Reddy’s had witnessed a fall of Rs. 10,628.51 crore (approximately US$ 1.61 billion) in a single day on BSE. At current market price (CMP) of Rs. 3,028, the company’s total Mcap is Rs. 51,660 crore on BSE.
Despite the FDA debacle, the company reported a consolidated net profit of Rs. 574 crore for Q3FY16. The drug major’s net sales stood at Rs. 3,968 crore, up 3.2% yoy.
Sliding on US Wicket
The company is facing more headwinds in the US stock markets. Dr Reddy’s Mcap on the NSYE has crashed by US$ 3.8 billion to US$ 7.50 billion as of February 29, 2016. It was US$ 11.30 billion when the company had received the FDA Warning Letter last year. The stock has nosedived 33.68% to US$ 43.98 from US$ 66.32 as of November 4, 2015. Dr. Reddy’s shares have tanked to its lowest level since June 27, 2014 on NYSE.
Adding to the company’s woes, more than a dozen shareholder and consumer rights litigation firms are now investigating into Dr. Reddy’s Laboratories to determine whether the drug maker and its officers and directors have violated the federal securities laws under the Securities Exchange Act of 1934. Zeldes Haeggquist & Eck, LLP is the latest addition to this list on February 29.
Recovery not in sight
The stock is yet to recover from the nasty fall and experts believe that recovery won’t happen anytime soon. Looking at the current market scenario, investors in Dr. Reddy’s shares are more likely to end the year on a disappointing note as the overall market sentiment is shattered.
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