Dr. Reddy’s: Benefiting from an R & D led re–rating
Dr. Reddy’s Laboratories (DRL) has shot up almost 24% in the last one month. The company has been one of the pro–active companies among Indian pharmaceutical companies in preparing for the product patent regime.
As per the C–Marc Prescription Audit Data, the company is among the top 5 domestic formulation companies with a 1.9% share of all drugs prescribed by doctors.
The company’s product profile is focused on anti–ulcer, anti–pain and anti–infectives segment. For its R & D efforts it has focused on the anti–diabetes segment so far (more on that later). It is this focus on its core competence that has enabled DRL to report a 34% growth in finished dosages in FY2000 when the overall formulation market grew by 9.2%. These were led by a 25% growth in Omez (the company's anti–ulcer drug), a 28% growth in Nise (anti–pain) and a 49% growth in Ciprolet (anti–infectives). The company’s top six brands Omez, Nise, Ciprolet, Stamlo, Enam and Stamlo Beta contributed 57% to the total turnover of the company. Ciprolet's success is particularly noteworthy since the anti–infectives market has grown by hardly 4%.
Also, the Russian problem has become less relevant with Russia’s diminishing importance due to the company’s aggressive expansion in markets such as China and Brazil. Infact the company’s exports grew by 39% to non–Russian markets (albeit over a smaller base of Rs 180 m).
Dr. Reddy's pipeline
Licensed to Novo Nordisk in June 1998; Entered phase II of clinical trials in Aug 2000
Licensed to Novo Nordisk in March 1997; Entered phase II of clinical trials in Mar 2000
Contrated to NDDO, a clinical research organisation; late pre–clinical studies
Metabolic disorder drug
Completed pre–clinical; under licensing negotaitions
Pre–clinical complete; IND application in the USA proposed
late pre–clinical development
As far as R & D is concerned in a sense, it was DRL, which pioneered pharmaceutical Research & Development among Indian pharmaceutical companies when it licensed its anti–diabetes insulin sensitiser DRF 2593 to a Danish company Novo Nordisk. The company arguably has the best R & D pipeline in the country with almost five molecules in pre–clinical trials.
What seems to be driving the stock however, is the consolidation of group interests. The acquisition of American Remedies and the amalgamation with Cheminor Drugs would catapult DRL to being the third largest pharmaceutical player in India. We expect the company to report a net profit in the range of Rs 1100 m in the current year. This implies an EPS of over Rs 34 on the consolidated equity and an earning multiple of over 40 times FY2001 earnings.
While there seems to be no dramatic undervaluation at current levels, the company has definitely benefited from an R & D led re–rating.
LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.
SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.
Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India. Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: firstname.lastname@example.org. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407