Largecap Pharma Stock Set to Split Shares in 1:5 After a 23-Year Hiatus

Most stocks in India typically trade on the Indian stock exchanges at prices below Rs 1,000 per share.

However, few stocks trade at a price range of thousands of rupees. These expensive stocks trade at very high price ranges and make it difficult for small retail investors to buy them.

This is where a stock split comes in.

A stock split divides a high-priced share into multiple, lower-priced shares without affecting the company's overall value.

This can make the stock more attractive to a broader base of investors, potentially increasing its trading activity.

In today's article, we will explore pharmaceutical companies trading above Rs 6,600 that are set to trade ex-stock split soon.

• On 27 July 2024, Dr Reddy's Laboratories approved the subdivision of its equity shares through a postal ballot in the ratio of 1:5.
• This means each share with a face value of Rs 5 will be split into 5 shares with a face value of Re 1.
• The company has set 28 October as the record date for determining shareholder eligibility to participate in the stock split.
• This is the first time the company will be conducting a split of its equity shares as a public entity.
• The stock split will also include its American Depository Shares (ADRs), subject to the approval of shareholders.
• This will be the pharma giant's second stock split, but the first in 23 years.
• The previous split occurred in October 2001, when the stock was split in a 1:2 ratio, reducing the face value from Rs 10 to Rs 5.

Recent Developments

# NRT Acquisition Deal

On 30 September 2024, Dr Reddy's Laboratories announced that its subsidiary, Dr Reddy's Laboratories SA, had entered into a definitive agreement with Haleon plc and its associate companies.

The agreement involves acquiring the global portfolio of consumer healthcare brands in the Nicotine Replacement Therapy (NRT) category, excluding the United States.

As part of this acquisition, the company will purchase shares of Northstar Switzerland SARL, a Haleon group entity.

Following the acquisition, Northstar Switzerland, along with its wholly-owned subsidiaries-North Star OpCo Limited (UK) and North Star Sweden AB (Sweden)-became wholly-owned step-down subsidiaries of Dr Reddy's Laboratories as of 30 September 2024.

Dr Reddy's will acquire the share capital of Northstar Switzerland SARL for a total consideration of GBP 500 million (m), which includes an upfront cash payment of GBP 458 million and performance-based contingent payments of up to GBP 42 m, payable in 2025 and 2026.

The acquired portfolio features Nicotinell, a leading global brand in the NRT space, with a presence in over 30 countries across Europe, Asia, and Latin America.

The portfolio includes a variety of formats, such as lozenges, patches, and gum, along with pipeline products in all relevant global markets, excluding the US.

# China's Suspension of Atomoxetine Capsules

China's National Medical Products Administration (NMPA) has suspended the import, sale, and use of Dr Reddy's Laboratories' Atomoxetine Hydrochloride capsules, effective 30 August 2024.

This decision follows a remote inspection of the company's formulations manufacturing facility (FTO-3) in Bachupally, Hyderabad, by NMPA, which found that the production quality management of the capsules did not meet China's Good Manufacturing Practice for Drugs.

As a result of the NMPA's action, the National Drug Joint Procurement Office (NDJPO) of China has revoked Dr. Reddy's "won" status for Atomoxetine Hydrochloride capsules and placed the company on the "violation list." This suspension prohibits the company from participating in national centralised drug procurement activities from 30 August 2024, to 28 February 2026.

Atomoxetine Hydrochloride capsules are used to treat attention deficit hyperactivity disorder (ADHD). Dr Reddy's is currently assessing the financial impact of this order.

# HIV Treatment Licensing Agreement

Hyderabad-based Hetero and Dr Reddy's Laboratories on 2 October signed a non-exclusive, royalty-free voluntary licensing agreement with Gilead Sciences Ireland UC to manufacture and distribute lenacapavir, a breakthrough HIV treatment drug, in 120 primarily low- and lower-middle-income countries (LMICs), including India.

Lenacapavir is a United States Food and Drug Administration (USFDA)-approved drug indicated for the treatment of human immunodeficiency virus type 1 (HIV-1) infection in heavily treatment-experienced adults with multidrug-resistant HIV-1 infection, failing their current antiretroviral regimen due to resistance, intolerance, or safety considerations.

Additionally, lenacapavir is currently under investigation for the prevention of HIV (PrEP), which is yet to be approved globally.

Gilead Sciences first launched lenacapavir under the brand name Sunlenca in the United States and European markets in 2022. It is a first-in-class HIV-1 capsid inhibitor.

A Close Look at the Financials

Dr Reddy's reported disappointing results for the June 2024 quarter.

For the June 2024 quarter, revenue rose 13.8% to Rs 67.6 bn. Dr Reddy's experienced 1% year-on-year (YoY) decline in net profit to Rs 13.9 bn.

In FY24, Dr Reddy's recorded a 13.5% YoY growth in revenue, totalling Rs 280.1 bn. Additionally, net profit for the year rose 23.8% to Rs 55.8 bn.

Dr Reddy's Financial Snapshot (FY20-24)

(Rs m, Consolidated)	FY20	FY21	FY22	FY23	FY24
Revenue	175,170.00	190,475.00	215,452.00	246,697.00	280,111.00
Revenue Growth (%)	13.4	8.7	13.1	14.5	13.5
Net Profit	20,260.00	19,516.00	21,825.00	45,073.00	55,779.00
Net Profit Margin (%)	11.6	10.2	10.1	18.3	19.9
Return on Equity (%)	13.1	11.1	11.4	19.5	19.8
Return on Capital Employed (%)	12.7	16.4	16.1	26.6	25.7

Source: Equitymaster

Over the past five years, its revenue saw a compound annual growth rate (CAGR) growth of 12.6%, while net profit grew at 23.4%.

Dr Reddy's has maintained a strong return on equity (RoE) and return on capital employed (RoCE), averaging a healthy 15% and 19.5%, respectively.

What Next?

Dr Reddy's aims to be carbon neutral in its direct operations by 2030, and to reduce indirect carbon emissions by 12.5% across its supply chain by the same year. The company also plans to use 100% renewable power by 2030.

Dr Reddy's is developing new small molecules for immuno-oncology, and differentiated products to improve existing therapeutic agents. The company is also investing in digital therapeutics and cell and gene therapies.

Dr Reddy's is taking the inorganic growth route through acquisitions. It has allocated Rs 15 bn for acquisitions for the year and has acquired several small and mid-sized businesses.

Apart from this, it focuses on niche products such as injectables and biosimilars to improve revenue and profit growth.

How Shares of Dr Reddy's have Performed Recently

The share price of Dr Reddy's has climbed by 1% in the past one month.

Over the past one year, shares of the company have rallied 20%. In the past five years, shares have delivered multibagger returns of over 140%.

The company touched its 52-week high of Rs 7,107.5 on 21 August 2024 and its 52-week low of Rs 5,205.6 on 30 October 2023.

About Dr Reddy's Laboratories

Dr Reddy's Laboratories is an Indian multinational pharmaceutical company based in Hyderabad. The company was founded by Kallam Anji Reddy, who previously worked in the mentor institute Indian Drugs and Pharmaceuticals.

Dr. Reddy's manufactures and markets a wide range of pharmaceuticals in India and overseas.

Dr. Reddy's began as a supplier to Indian drug manufacturers, but it soon started exporting to other less-regulated markets that had the advantage of not having to spend time and money on a manufacturing plant that would gain approval from a drug licensing body such as the US Food and Drug Administration (FDA).

To know more about the company, check out the Dr Reddy's Laboratories fact sheet and quarterly results on our website.

You can also compare Dr Reddy's Laboratories with its peers:

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