The performance of Dr Reddy's Labs, or DRL, in the quarter to March and its cumulative performance in fiscal year 2013 reinforce the promise this frontline drug company, with a fairly diversified business model, holds for medium-term investors.
The company has performed well in most of its businesses in North America, fuelled by exclusivity launches, and in emerging markets, thanks to its performance in Russia, CIS markets and India, boosted by strong growth in its biosimilars. Its contract manufacturing business has also grown well on the back of increased sales of active ingredients to generic customers on account of patent expirations and higher customer orders.
The company has obtained approvals for certain niche products such as Isotretinoin and Reclast, which have a market size of $300 million (about Rs 1,642 crore) each.
The new launches will help offset the price erosion in generic launches of larger products. The company has 65 products waiting for approval from the US FDA, of which 38 are para-IV filings and eight have 'first-to-file' status.
However, the delay in securing drug approvals in the US is a key threat to the company's ability to promptly monetise its pipeline.
Among the emerging markets, Russia appears to be the most promising. The company is the sixth-largest branded generic company, growing at a compounded annual growth rate (CAGR) of 25%.
In India, while the company's pace of growth has slowed down in line with the industry, its growing portfolio of biosimilars, where it has the first-mover advantage, is emerging as a strong growth driver.
The stock is currently trading at 24 times the earnings for the last four quarters. These valuations are lower compared with the other frontline stocks like Sun PharmaBSE 0.15 %,LupinBSE 3.18 %, Cadila HealthcareBSE 0.49 % and GSK Pharma, making it a value pick among large-cap drug companies.