Despite a healthy 20 per cent growth in its net profits (adjusted for interest on bonus debenture, VRS and normalised tax rate) for latest June quarter, Dr Reddy's results have been mixed. Even as revenues grew by over 18 per cent, operating profit margins were marginally down and the domestic business put up an unimpressive show.

The global generics business grew by over 21 per cent, driven primarily by strong growth in North America (up by 48 per cent), led by new launches of last year and market share increase across key products – lansoprazole, tacrolimus and omeprazole OTC to name a few.

US, the revenue driver

With several new launches – Fondaparinux (launched recently), Allegra D24 and Olanzapine – expected this year, the US is likely to remain the revenue driver. DRL managed a strong show in Russia too with a 20 per cent growth. The OTC segment now makes up about 30 per cent of its Russia sales as compared with 25 per cent in the year-ago quarter.

Domestic disappoints

It was the company's performance back home, however, that left a lot to be desired. It registered a modest 6 per cent domestic sales growth, much lower than the industry average of about 14 per cent. Competitive pressure in key therapeutic segments and costs from newly added field agents (500 agents added last year; current count 3,800) contributed partly to this.

Overseas challenges

In its overseas operations, the company continued to face challenges with the German Betapharm reporting a sales decline of about 9 per cent. The coming quarters may see some respite on volumes, with the AOK tender win. The other overhang comes from the company's recent US FDA import alert on its Mexico facility.

North America is likely to remain strong in the coming quarters, thanks to its attractive product pipeline (including new launches from Bristol facility). The company has 76 pending approvals, of which 36 are Para IVs and 11 FTFs.

While the recent launch of Fondaparinux would be a key earnings driver, the possibility of the entry of an authorised generic here could limit gains. Revival in company's domestic segment too would hold the key.

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