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Dr Reddy’s Laboratories stock gained 8 per cent the past week compared to Nifty Pharma index which declined by 1 per cent. Dr. Reddy with higher exposure to Russia, gained on Russian envoy’s positive view around Indian pharma sector which is expected to play a greater role in Russia going ahead.
Denis Alipov, Russian envoy to India, indicated that Indian pharmaceutical companies could replace western manufacturers in the country. The imposition of sanctions by western countries may leave a significant vacuum in Russia which would leave room for Indian companies to capture. Also, India being a generic pharmaceutical leader is well-positioned to fill the void.
Dr Reddy’s has significant exposure to the region deriving close to 8.8 per cent of its sales from Russia as per its December 2021 quarter (Q3) financials. The adjoining regions of Armenia, Belarus, Georgia grouped under CIS also accounted for 4.5 per cent of sales in Q3FY22. Also, the company was in an investment mode in Russia prior to the conflict having launched biosimilars and more launches planned. The generics arm of Dr Reddy’s has a long business history in Russia as well. Dr. Reddy has also partnered Russian Direct Investment Fund for the development of Covid-19 vaccine Sputnik V. The booster version, Sputnik Light has also gained approval in the month of February-2022 from DCGI and has potential for export use. With favourable view developing around mixed vaccine use (different vaccine at initial and booster stages) Dr. Reddy’s Russian partnership may bear fruit
But last week’s recovery must be seen against the backdrop of 10 per cent year-to-date correction in Dr Reddy’s stock price, which has gradually priced in the risk from Russia – Ukraine conflict and a consequent depreciation of the Russian Ruble. The currency has depreciated by 30 per cent YTD against Indian Rupee. Also, unlike other Indian companies, Dr. Reddy is listed on American stock exchange NYSE through its ADR and hence may be subject to similar restrictions as other American companies on trade with Russia going forward.
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