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DRRD reported strong Q2FY12 earnings driven by US generics and PSAI
business. US product launch pipeline appears robust, which together with Russia
should support growth in 2H. Growth in India remains muted and Europe
continues to de-grow on German tenders. PSAI growth picked up in 2Q after tepid
1Q and management expects the rate to sustain going forward in 2H and FY13.
US and PSAI drive Q2 growth. NA generic revenues increased 42% YoY
driven primarily by new launches (5 new products launched in 2Q), including
limited competition products such as fondaparinux and fexofenadine
pseudoephedrine D24 OTC. Management noted that increased market share in
certain key products has also aided growth. With US launch of (180-day
exclusivity) Olanzapine 20 mg (US$900MM market size) in 3Q, DRRD US
product pipeline appears robust and should support the revenue growth for the
2H. PSAI business revenues increased 29% YoY led by new product launches
in Europe and improved customer order book for Pharma services.
Pricing pressure in Germany, growth in India remains tepid. European
generics revenues declined 11% YoY with Germany (-27%, adverse impact
from tender business) offsetting 26% growth rate in Rest of Europe (new
launches in UK, growth in out-licensing). Russia/CIS grew 23% YoY driven by
increase in OTC products portfolio. Indian business growth remained subdued
at 10% YoY, tracking below market growth rates. Management indicated that
the sales force re-alignment disrupted domestic sales in 2Q, and expects to see
enhanced sales force productivity going forward.
Q2FY12 result highlights. Revenues up 21% YoY driven by strong growth in
US Generics (+42% YoY), Russia/CIS (+23% YoY) and Europe PSAI business
(+49% YoY). Gross margins improved 40bp YoY (Global Generics gross
margins -100bp YoY, PSAI gross margins +420bp YoY). Adj. EBITDA
margins declined 30bps YoY on higher S,G&A costs (+130bp YoY). Net profits
+7% YoY pared by higher depreciation and taxes.
Maintain Neutral. DRRD stock currently trades at 24.2x FY12E P/E and 19.7x
FY13E P/E, which we believe are fair valuations pricing in growth opportunities
to FY14. Remain N with Mar-12 TP of Rs1600. Key upside risks include new
big-ticket product approvals in the US, pick-up in domestic growth and steep
ramp-up of GSK alliance. Key downside risks include potential regulatory
issues, delays in US launches, and a protracted growth slowdown in India
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
DRRD reported strong Q2FY12 earnings driven by US generics and PSAI
business. US product launch pipeline appears robust, which together with Russia
should support growth in 2H. Growth in India remains muted and Europe
continues to de-grow on German tenders. PSAI growth picked up in 2Q after tepid
1Q and management expects the rate to sustain going forward in 2H and FY13.
US and PSAI drive Q2 growth. NA generic revenues increased 42% YoY
driven primarily by new launches (5 new products launched in 2Q), including
limited competition products such as fondaparinux and fexofenadine
pseudoephedrine D24 OTC. Management noted that increased market share in
certain key products has also aided growth. With US launch of (180-day
exclusivity) Olanzapine 20 mg (US$900MM market size) in 3Q, DRRD US
product pipeline appears robust and should support the revenue growth for the
2H. PSAI business revenues increased 29% YoY led by new product launches
in Europe and improved customer order book for Pharma services.
Pricing pressure in Germany, growth in India remains tepid. European
generics revenues declined 11% YoY with Germany (-27%, adverse impact
from tender business) offsetting 26% growth rate in Rest of Europe (new
launches in UK, growth in out-licensing). Russia/CIS grew 23% YoY driven by
increase in OTC products portfolio. Indian business growth remained subdued
at 10% YoY, tracking below market growth rates. Management indicated that
the sales force re-alignment disrupted domestic sales in 2Q, and expects to see
enhanced sales force productivity going forward.
Q2FY12 result highlights. Revenues up 21% YoY driven by strong growth in
US Generics (+42% YoY), Russia/CIS (+23% YoY) and Europe PSAI business
(+49% YoY). Gross margins improved 40bp YoY (Global Generics gross
margins -100bp YoY, PSAI gross margins +420bp YoY). Adj. EBITDA
margins declined 30bps YoY on higher S,G&A costs (+130bp YoY). Net profits
+7% YoY pared by higher depreciation and taxes.
Maintain Neutral. DRRD stock currently trades at 24.2x FY12E P/E and 19.7x
FY13E P/E, which we believe are fair valuations pricing in growth opportunities
to FY14. Remain N with Mar-12 TP of Rs1600. Key upside risks include new
big-ticket product approvals in the US, pick-up in domestic growth and steep
ramp-up of GSK alliance. Key downside risks include potential regulatory
issues, delays in US launches, and a protracted growth slowdown in India
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