Promising Quarter for Dr. Reddy's - Analyst Blog

Dr. Reddy's Laboratories ( RDY ) reported first quarter fiscal 2013 earnings per American Depositary Share (ADS) of 40 cents, well above the year-ago earnings of 30 cents per ADS. Higher revenues boosted earnings.

The company reported revenues of $457 million during the quarter, reflecting a year-over-year increase of 28%.

Quarter in Detail

Dr. Reddy's reports revenues under two segments - Global Generics and Pharmaceutical Services & Active Ingredients (PSAI). While revenue at the Global Generics segment jumped 32% to $343 million, PSAI revenue climbed 14% to $99 million during the quarter.

Generics revenue soared 38% in both North America and Russia and other CIS (Commonwealth of Independent States) markets and 19% in India. Growth was attributable to new generic launches aided by an increase in sales volume.

Though sales declined in Europe in the fourth quarter of fiscal 2012, sales climbed up 14% year-over-year in the first quarter of fiscal 2013. Growth was primarily due to an increase in revenue from Germany due to products supplied under the AOK tender which the company won last year.

Gross margin at Dr. Reddy's remained flat at 53% compared to last year's figure. Selling, general and administration (SG&A) expenses amounted to $149 million, reflecting an increase of 23%. Salary increments, higher sales and marketing costs along with exchange rate fluctuation led to the rise in SG&A costs.

Research and development (R&D) expenses increased 31% to $28 million.

During the quarter, Dr. Reddy's launched 33 new generic products and filed four abbreviated new drug applications (ANDAs) with the US Food and Drug Administration (FDA). Cumulatively, 73 ANDAs are pending approval with the FDA, of which 36 are Para IV filings and 6 are first-to-file.

In June, Dr. Reddy's entered into a collaborative agreement with Merck Serono, a division of Merck KGaA ( MKGAF ) for the co-development of biosimilar compounds in oncology. This deal should drive long term growth at Dr. Reddy's.

Our Take

We currently have a Neutral recommendation on Dr. Reddy's, which carries a Zacks #3 Rank (short-term Hold rating). We believe that Dr. Reddy's is in a strong position to benefit from the huge potential presented by the new launches in the US generics market. The company should benefit from the launch of its generic versions of Pfizer Inc.'s ( PFE ) Lipitor.

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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.

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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