Dr Reddy's Laboratories: Revival of weak biz segments encouraging
Robust growth in business in the US and Russia catapulted Dr Reddy's Laboratories' September quarter performance beyond market expectations.
By Kiran Kabtta Somvanshi, ET Bureau |
Robust growth in business in the US and Russia catapulted Dr Reddy’s Laboratories’ (DRL) September quarter performance beyond market expectations.
While the strong businesses drove the growth, the performance of weak businesses has been encouraging. On a consolidated basis, revenues grew by 21% and net profit rose by 7%. North America is the company’s largest and strongest market contributing one third to the company’s total revenues.
New product launches, limited competition products and improved market share led to the company’s strong performance in the region. DRL is focusing on scaling up of manufacturing and having a higher mix of US generics in the total global generics.
The Russian business, though not a large contributor, has proved to be yet another growth driver for the company. The OTC business in particular is doing particularly well for the company in the region.
However, the non-Russia CIS business has not registered any growth. While Indian and German businesses continued to be the laggards, the sequential improvement in the performance of the Indian business is a welcome sign. Though the growth of 9% is below the industry growth rate, the company has done well in September.
Most of the company’s top brands have done well with an increasing trend visible in the secondary sales. Its biosimilars portfolio has particularly done well – logging a growth of 22% YoY hinting at a better period ahead.
The company’s pharma services business also seems to have turned around a difficult corner as the business has registered a strong double-digit growth after growing in single digits since the last few quarters. The pricing pressure brought about by the tender-based business structure has adversely affected the profitability of the company’s German business.
The effect of the AOK tender would be visible in the company’s performance from the next quarter. The company’s management expects the second half of the fiscal to be better than the first one — characterised by more product launches, increase in market share and higher spend on R&D to focus more on complex generics. It’s probably the right time for investors to consider this stock.
While the strong businesses drove the growth, the performance of weak businesses has been encouraging. On a consolidated basis, revenues grew by 21% and net profit rose by 7%. North America is the company’s largest and strongest market contributing one third to the company’s total revenues.
New product launches, limited competition products and improved market share led to the company’s strong performance in the region. DRL is focusing on scaling up of manufacturing and having a higher mix of US generics in the total global generics.
The Russian business, though not a large contributor, has proved to be yet another growth driver for the company. The OTC business in particular is doing particularly well for the company in the region.
However, the non-Russia CIS business has not registered any growth. While Indian and German businesses continued to be the laggards, the sequential improvement in the performance of the Indian business is a welcome sign. Though the growth of 9% is below the industry growth rate, the company has done well in September.
Most of the company’s top brands have done well with an increasing trend visible in the secondary sales. Its biosimilars portfolio has particularly done well – logging a growth of 22% YoY hinting at a better period ahead.
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The company’s pharma services business also seems to have turned around a difficult corner as the business has registered a strong double-digit growth after growing in single digits since the last few quarters. The pricing pressure brought about by the tender-based business structure has adversely affected the profitability of the company’s German business.
The effect of the AOK tender would be visible in the company’s performance from the next quarter. The company’s management expects the second half of the fiscal to be better than the first one — characterised by more product launches, increase in market share and higher spend on R&D to focus more on complex generics. It’s probably the right time for investors to consider this stock.
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