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Dhuraivel Gunasekaran
Dr Reddy’s Lab continued to report stable growth (year-on-year) in the US market over the last three quarters driven by new launches, coupled with subsiding price erosion in the base business. In the first quarter of the current fiscal, its US business grew 6 per cent to ₹1,728 crore contributing 39 per cent of the over all business.
In the forthcoming quarters, limited-competition products such as Copaxone and NuvaRing, which have been long-pending for approval, are expected to generate significant revenue for the company, once launched in the US market.
Having resolved the regulatory issues at most of its key facilities, Dr Reddy’s is set to ramp up its US performance further, given its low product-revenue concentration and new launches of complex and limited-competition products. The company has been one of the best Para IV ANDA filing entities in the industry. Of the 99 pending ANDAs, 54 are Para IV filings and 28 have FTF (first-to-file) status (as of June 2020). The management has guided to launch around 25 ANDAs in FY21.
Europe and PSAI (Pharmaceutical Services and Active Ingredients) segments contributed much during the quarter growing (y-o-y) by 48 per cent and 88 per cent, respectively, while growth was tepid in the domestic market, slipping by 10 per cent. Higher sales contributed to Europe revenue while the low base aided in higher growth in PSAI segment.
Lower sales volume and fall in patient footfalls in clinics due to Covid-19 impacted the domestic revenue. The company is actively working on improving the share of chronic and super-specialty categories in the domestic market. Building synergy with the newly acquired Wockhardt portfolio will also aid growth in the medium term.
At ₹4,300, Dr Reddy’s stock trades at about 38 times its trailing 12-month earnings, which is higher than its three-year average of 29 times. It is cheaper than similar-sized peer Divi’s Laboratories that trades at price earnings multiples of 47 times, while it is more expensive than Sun Pharma and Cipla, which are trading at 31 and 36 times, respectively.
The company’s operating margin stood at 26.3 per cent during the quarter compared with 29.5 per cent in the during the quarter, due to higher selling, general & administrative expenses.
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