Dr. Reddy’s Laboratories (RDY) reported second quarter fiscal 2012 earnings per American Depositary Share (ADS) of 40 cents, significantly above the year-ago earnings of 30 cents per ADS. Higher revenues helped boost earnings.
Quarter at a Glance
The company reported revenues of $462 million during the fiscal year, reflecting a year-over-year increase of 22%. Dr. Reddy’s reports revenues under two segments – Global Generics and Pharmaceutical Services & Active Ingredients (PSAI). While, revenues at the Global Generics segment increased 18% to $329 million, PSAI revenues shot up 28% to $121 million during the quarter.
While generics revenues increased 45% in North America, 23% in Russia and other CIS (Commonwealth of Independent States) markets, and 9% in India, they deteriorated 10% in Europe. In the European market, Germany was worst hit with a 27% drop (due to continuing impact of tenders). However, the rest of Europe experienced a 26% rise in revenues.
Gross margin at Dr. Reddy’s inched up to 54% in the reported quarter, from 53% in the year ago quarter. Gross margin improved due to higher revenues.
Selling, general and administration (SG&A) expenses amounted to $147 million, reflecting an increase of 26%. Higher freight charges, inflation, incremental costs at the Bristol and Shreveport manufacturing facilities and elevated sales activities in Russia and CIS led to the rise in SG&A costs.
Higher research and development (R&D) activities led to a 15% surge in R&D expenses, which came in at $30 million.
During the quarter, Dr. Reddy’s launched 28 new generic products, filed 17 new product registrations, and 11 drug master files (DMF) globally. The total number of abbreviated new drug applications (ANDAs) awaiting US Food and Drug Administration (FDA) approval were 76 at the end of the quarter. Of the 76 ANDAs, 40 were Para IV filings and 11 are first-to-file.
Our Take
We currently have a Neutral recommendation on Dr. Reddy’s. We believe the company is in a strong position to benefit from the huge potential presented by the US generics market, as quite a few drugs are slated to lose patent exclusivity in the coming years.
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