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Dr. Reddy's Laboratories
Limited (REDY.BO / DRRD IN)
Focus pays
Dr. Reddy’s (DRL) stock suffered for several years, as its aggressive
strategies for growth backfired. Over the past two years, management has
focused on key markets and this is already showing results.
■
Back on track with the right product focus: From aggressive growth
plans across geographies, DRL has adopted a more mature strategy of
focusing on selected markets where it is offering products where competition
is low. It now aims for $1 bn in sales from branded generics, compared to
$450 mn in FY10. In Russia, it generates US$200 mn from 15 products and
four of these are top ranked molecules, and now it is focussing on OT C
products. South African partner’s stake has been bought now, and
meaningful expansion is expected. In the US: Zyprexa, Prevacid,
Fondaparinux and Omeprazoole OTC are prime examples of selective
launches. Given its aggressive targeting of growth outside India, the
company lost momentum in India. Now it is back on track and growing faster
than the market.
■
Emerging market deal with GSK positive: As per the deal, Dr. Reddy’s will
be responsible for manufacturing, while GSK will do the marketing. The
markets the company exited in March 2009 are mostly those being targeted
via this alliance: it gives Dr. Reddy’s an opportunity to service these markets
without a front end. The alliance includes Brazil, which is expected to drive
$150mn by FY15.
■
Strong FY13 guidance banks on US: Management maintains FY13 sales
guidance of US$3 bn and a 25% ROCE implies a 20% EBIT margin (versus
an adjusted 11% in FY09) and EPS of about Rs150. This, we believe, is
likely to include one-offs: exclusivities/settlements in the US in FY12/13.
Much of the growth is expected from the US in near term, but emerging
market contribution will be much bigger in few years.
■
Limited downside, material upside: Almost 60% of Dr. Reddy’s value
comes from its branded generic franchise, mainly in India and Russia – and
we expect continued strong growth here. With many of the risks from
Betapharm now over, we see limited downside to an FY12 EPS of Rs108.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Dr. Reddy's Laboratories
Limited (REDY.BO / DRRD IN)
Focus pays
Dr. Reddy’s (DRL) stock suffered for several years, as its aggressive
strategies for growth backfired. Over the past two years, management has
focused on key markets and this is already showing results.
■
Back on track with the right product focus: From aggressive growth
plans across geographies, DRL has adopted a more mature strategy of
focusing on selected markets where it is offering products where competition
is low. It now aims for $1 bn in sales from branded generics, compared to
$450 mn in FY10. In Russia, it generates US$200 mn from 15 products and
four of these are top ranked molecules, and now it is focussing on OT C
products. South African partner’s stake has been bought now, and
meaningful expansion is expected. In the US: Zyprexa, Prevacid,
Fondaparinux and Omeprazoole OTC are prime examples of selective
launches. Given its aggressive targeting of growth outside India, the
company lost momentum in India. Now it is back on track and growing faster
than the market.
■
Emerging market deal with GSK positive: As per the deal, Dr. Reddy’s will
be responsible for manufacturing, while GSK will do the marketing. The
markets the company exited in March 2009 are mostly those being targeted
via this alliance: it gives Dr. Reddy’s an opportunity to service these markets
without a front end. The alliance includes Brazil, which is expected to drive
$150mn by FY15.
■
Strong FY13 guidance banks on US: Management maintains FY13 sales
guidance of US$3 bn and a 25% ROCE implies a 20% EBIT margin (versus
an adjusted 11% in FY09) and EPS of about Rs150. This, we believe, is
likely to include one-offs: exclusivities/settlements in the US in FY12/13.
Much of the growth is expected from the US in near term, but emerging
market contribution will be much bigger in few years.
■
Limited downside, material upside: Almost 60% of Dr. Reddy’s value
comes from its branded generic franchise, mainly in India and Russia – and
we expect continued strong growth here. With many of the risks from
Betapharm now over, we see limited downside to an FY12 EPS of Rs108.
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