Dr. Reddy’s Laboratories (RDY) reported first quarter fiscal 2012 earnings per American Depositary Share (ADS) of 33 cents compared with 28 cents per ADS posted in the year-ago quarter. Substantive surge in the revenues helped lift the company’s earnings.
Quarter at a Glance
For the first quarter 2012, the company reported revenues of $444 million, reflecting a year-over-year increase of 18%. Dr. Reddy’s reports revenues under two segments – Global Generics and Pharmaceutical Services & Active Ingredients (PSAI). Total revenue at the Global Generics segment increased 21% year on year to $323 million, while PSAI revenue jumped 7% to $109 million during the quarter. Revenues from Proprietary Products and Others accounted for the balance.
While generics revenue increased 48% in North America, 18% in Russia and other CIS (Commonwealth of Independent States) markets, and 6% in India, it declined 1% in Europe. In the European market, Germany saw a 9% drop. This decline was partially mitigated by a 15% rise in sales recorded by the Global Generics segment in the rest of Europe.
During the quarter, gross margin at Dr. Reddy’s remained flat at 53%. Selling, general and administration (SG&A) expenses amounted to $151 million, reflecting an increase of 23% year on year due to increments of employees, elevated sales activities in Russia and additional costs related to the Bristol penicillin facility, which was acquired from GlaxoSmithKline plc (GSK) last year.
Higher research and development (R&D) activities led to a 21% surge in R&D expenses, which came in at $27 million.
Other Details
During the quarter, Dr. Reddy’s launched 39 new generic products, filed 31 new product registrations, and 9 drug master files (DMF) globally. The total number of abbreviated new drug applications (ANDA) awaiting US Food and Drug Administration (FDA) approval were 76 at the end of first quarter of fiscal 2012. Of the 76 ANDAs, 36 are Para IV filings and 11 are first-to-file.
Our Take
We currently have a Neutral recommendation on Dr. Reddy’s. The stock carries a Zacks #3 Rank (Hold rating) in the short run. We believe the company is in a strong position to benefit from the huge potential represented by the US generics market, as drugs with sales of about $75 billion are slated to lose patent exclusivity in the coming years.
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