Dr Reddy: Overseas pill

European and US generics marts buoy Dr Reddy's.

Dr Reddy's has once again reported substantially better quarterly results thanks to the rapid ramp-up in sales in the European and US generics markets.

As a result, the company's consolidated operating profit grew a whopping 317.7 per cent y-o-y to Rs 290.8 crore in the December 2006 quarter compared with 168 per cent growth in adjusted operating income to Rs 1,491.18 crore.

However, the company's Q3 FY07 results are not strictly comparable with a year earlier, given the acquisitions it made in Germany and Mexico in the previous year.

Nevertheless, the company saw its operating profit margin grow by 700 basis points y-o-y to 19.5 per cent in the last quarter. In the September 2006 quarter too, the company had grown its operating profit margins by 470 basis points y-o-y to 24.85 per cent.

Meanwhile, the company's European generic sales jumped a staggering 791 per cent to Rs 303.5 crore in the last quarter, helped by the betapharm acquisition.

In the US generics markets, revenues also jumped 864 per cent to Rs 463 crore, helped by supply of authorised generics for Merck's Proscar and Zocor, medications for prostate and cholesterol respectively. On a sequential basis, however, supplies of these authorised generics dropped nearly 56.5 per cent in Q3 FY07.

Going forward, the growth in American generics market is expected to be driven by sales of ondansetron tablets (generic version of Zofran tablets), a medication for treating nausea and vomiting following chemotherapy, for which the company has a 180-day exclusivity.

In addition, growth is also expected to be driven by its rapidly expanding contract-manufacturing business, thanks to the earlier acquisition of Mexico-based Falcon. However, with the stock trading at 22.5 times estimated FY 08 earnings, it is expensive.

Bank of Baroda: Sound numbers

Strong credit growth, a higher proportion of low cost deposits and stable margins resulted in a strong quarterly performance for December 2006 at Bank of Baroda. Operating profit grew 29 per cent to Rs 657 crore, while net interest income was up 18.1 per cent.

Net interest margins at 3.21 per cent were just 2 basis points lower on a y-o-y basis, but were up 10 basis points y-o-y. If other public sector banks had a tough time raising deposits, Bank of Baroda was an exception, as its deposits grew 31 per cent y-o-y at the end of Q3.

Advances were up an impressive 46.8 per cent. Its overseas operations saw higher growth than its domestic business-overseas assets account for 18.6 per cent of total assets in Q3 FY07 vs 15 per cent a year earlier.

Though low-cost deposits improved 10 percentage points y-o-y to 40 per cent, they were down 180 basis points q-o-q. While its other income went up 21.6 per cent, the 29 per cent increase in fee income indicates better quality.

Going forward, the bank is likely to face some pressure on margins, but its strong growth rates in credit and deposits should compensate for better earnings. The bank trades at about 1.1 times estimated FY07 book value and once FY08 book value, and should outperform other public sector bank stocks.

Hindalco: Rising metal

Hindalco has reported impressive December 2006 quarter results thanks to strong aluminium prices on a y-o-y basis, coupled with an improvement in its TC/RC (treatment and refining charges) in the copper division.

As a result, operating profit grew by 79.2 per cent y-o-y to Rs 1045.3 crore in Q3 FY07 compared with 62.1 per cent growth in net sales to Rs 4656.2 crore.

Operating profit margin also expanded 210 basis points y-o-y to 22.4 per cent in the last quarter. In the September 2006 quarter too, the company had grown its operating profit margin by 300 basis points y-o-y to 21.3 per cent.

Meanwhile, in the last quarter, the production of aluminium was up 2.7 per cent y-o-y to 111,871 tonne. Of crucial importance is that average prices of aluminium were up 31.4 per cent y-o-y to $2,723 per tones in Q3 FY07. Segment profit grew 39.3 per cent y-o-y to Rs 755.5 crore in the December quarter.

In its copper division, production of copper cathodes was up 64.8 per cent y-o-y to 72,904 tonne in the last quarter, while that of copper cathodes rose by 8.78 per cent.

The company's TC/RC were also estimated at 35 cents a pound in the December 2006 quarter as compared to 22 cents a pound a year earlier, say analysts. Segment profit was Rs 159.5 crore in Q3 FY07 as compared to a segment loss of Rs 84.5 crore a year earlier.

Going forward, the direction of aluminium prices will continue to be a key determinant of the company's growth. However, in its copper division, TC/RC margins could face pressure over the next few quarters owing to a tight supply in global copper concentrates. The stocks trades at a reasonable 7.5 times estimated FY08 earnings.