India's Dr Reddy's Laboratories Ltd posted an unexpected net loss for the December quarter as it wrote off $60 million of costs for its underperforming German unit and saw revenues decline.

The company hoped to perform better in the fiscal year beginning in April on improved sales of generics in India and Russia, and on a turnaround in its German business, chief executive G.V. Prasad said in a statement.

Growth in 2008/09 should be helped by the launch of a generic version of GlaxoSmithKline's Imitrex tablets in the United States in the December quarter, Prasad said. We remain confident of the outlook for the next financial year, he said.

Germany is an important market for Dr Reddy's and we remain committed to building a profitable business over the next few years. Dr Reddy's, the only Indian drug maker listed in New York, reported a consolidated net loss of 847 million rupees ($21.5 million) for its fiscal third quarter under U.S. accounting rules, compared to a net profit of 1.88 billion a year ago.

A Reuters poll of 11 brokerages had forecast net profit to fall 31.7 percent to 1.28 billion rupees in the third quarter. Estimates ranged from 1.08 billion rupees to 1.55 billion rupees

The Hyderabad-based firm took additional amortisation charges of 2.36 billion rupees in the quarter for Germany's Betapharm, which it bought for $572 million in 2006.

Without the charge, Dr Reddy's said net profit would have been 1.03 billion rupees, which was also below forecasts.

Betapharm has been a drag on earnings due to supply constraints, price falls and a stronger rupee.

Quarterly revenue decreased to 12.3 billion rupees from 15.4 billion a year earlier. Revenue from Betapharm was at 2 billion rupees in the quarter, down from 2.6 billion in a year earlier.

MOVING OPERATIONS

Rival Ranbaxy Laboratories, India's biggest drug maker by sales, last week reported a better-than-expected 1 percent rise in quarterly net profit.

Prasad said the Dr Reddy's, which has a market value of more than $2 billion, was making good progress in moving the manufacturing operations of Betapharm to India and to other manufacturers within Europe.

Despite the competitive pressure in this market, we will target to improve the market shares on the back of assured supplies, new launches and cost savings from the transfer of key products out of India, he said.

Analysts forecast a stable outlook for the sector as drugs with annual U.S. sales of $50 billion are expected to go off patent by 2010, creating more opportunities for Indian firms to sell generic versions, or cheap copies of branded products.

During the quarter, Dr Reddy's shares rose 13.3 percent, trailing a 17.3 percent rise in the Mumbai market's benchmark index and Sun Pharmaceutical Industries' 26.6 percent rise.

Ahead of the earnings announcement, shares in Dr Reddy's ended 6.7 percent higher at 605.40 rupees in a Mumbai market that rose 6.6 percent. ($1=39.4 rupees) (Writing by Sumeet Chatterjee; Editing by John Mair)

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