According to newspaper reports, Dr Reddy's Laboratories has announced a 4% (YoY) growth in total sales for the second quarter ended 30th September 1999. The company's formulations business has grown by 26% while sales in the bulk drugs division declined 21% during the period.
Dr Reddy's is one of the fastest growing companies in the pharmaceutical sector having a 1.4% market share in domestic formulations. The company has developed from being a purely bulk drug based company to a formulation-based company. The company is one of the leading spenders on R&D (5% of FY99 sales) in India.
Dr Reddy's performance continues to be subdued due to the unstability in the CIS countries, a major export market. This is also reflected in the slump in exports, which declined 16% during the second quarter. The saving grace has been the higher margin formulations division of the company.
As the detailed results are yet to be announced, it can only be guesstimated that, if the milestone payment from Novo Nordisk were not to be considered, the company's bottomline performance would not be very good.
The company's exposure to the Russian and CIS countries has weighed heavily on its performance since August 1998, when Russia fell victim to the Asian contagion. However, the company's export performance can be expected to improve as and when the current economic and political turmoil in the region abates.
DRL's research initiatives will also provide the company other sources of revenues in the form of milestone payments from the lessees of the molecules. This could more than undo the damage caused by the decline in exports.
Analysts are increasingly getting convinced of the seriousness of the R&D efforts of the company. They are recommending a 'BUY' as they expect the R&D efforts to yield returns for the company in the future.
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