Generics Drive Dr. Reddy's - Analyst Blog


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Dr. Reddy's Laboratories ( RDY ) reported fiscal 2012 (ended March 31) earnings per American Depositary Share (ADS) of $1.60, above the year-ago earnings of $1.30 per ADS. Higher revenues boosted earnings. The Zacks Consensus Estimate for fiscal 2012 was $1.87 per ADS.

Year at a Glance

The company reported revenues of $1.90 billion during the year, reflecting a year-over-year increase of 30%. Dr. Reddy's reports revenues under two segments - Global Generics and Pharmaceutical Services & Active Ingredients (PSAI). While revenues at the Global Generics segment jumped 32% to $1.38 billion, PSAI revenues climbed 21% to $468 million during the year, driven by significant new product launches.

Generics revenues soared 68% in North America, 22% in Russia and other CIS (Commonwealth of Independent States) markets and 11% in India. Growth was mainly driven by new generic launches aided by an increase in the sales volume.

However, in Europe, sales declined 2%, primarily due to exchange rate fluctuation and the pricing pressure in the German market.

Gross margin at Dr. Reddy's inched up to 55% from 54% in the year-ago period. Gross margin improved due to higher revenues and exchange rate fluctuation.

Selling, general and administration (SG&A) expenses amounted to $142 million, reflecting an increase of 22%. Higher manpower and distribution costs along with exchange rate fluctuation led to the rise in SG&A costs.

Increased research and development (R&D) activities led to a 17% surge in R&D expenses, which came in at $34 million.

During the year, Dr. Reddy's launched 16 new generic products, filed 17 abbreviated new drug applications (ANDAs) with the U.S. Food and Drug Administration (FDA). Cumulatively 80 ANDAs are pending for approval with the FDA, of which 41 are Para IV filings and 7 are first-to-file.

Additionally, during the year, 68 drug master files (DMF) were filed globally, 14 each in the U.S. and Europe. The cumulative DMF filings as of March 31, 2012 were 543.

Our Take

We currently have a Neutral recommendation on Dr. Reddy's. We believe that the company is in a strong position to benefit from the huge potential presented by the U.S. generics market, as quite a few blockbuster drugs such as Johnson & Johnson 's ( JNJ ) Concerta and Pfizer Inc. 's ( PFE ) Lipitor have lost patent exclusivity and more drugs are slated to go off-patent in the coming years.

JOHNSON & JOHNS (JNJ): Free Stock Analysis Report
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DOCTOR REDDYS (RDY): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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