Dr Reddy's hits new high, soars 13% in 1 month; m-cap nears Rs 1-trn mark

The stock hit a new high at Rs 5,850 on gaining 3 per cent in an otherwise weak market.

Shares of Dr Reddy’s Laboratories hit a new high of Rs 5,850, on rallying 3 per cent on the BSE in Wednesday’s intra-day trade in an otherwise weak market on improved financial performance. In comparison, the S&P BSE Sensex was down 0.5 per cent at 65,523 at 10:42 AM.

In past one month, the stock price of the drug company has outperformed the market by surging 13 per cent as against 0.28 per cent rise in the benchmark index. While, thus far in the calendar year, it has rallied nearly 40 per cent, as compared to 7 per cent gain on the Sensex.

A sharp outperformance of stock has seen, the market capitalisation of Dr Reddy’s Laboratories inch towards Rs 1 trillion mark. Currently, the company has market cap of Rs 97,000 crore, is 3 per cent away to become the fourth pharmaceutical company to achieve the feat.

Sun Pharmaceutical Industries is on top of the list with Rs 2.75 trillion market cap, followed by Cipla (Rs 1.01 trillion) and Divi’s Laboratories (Rs 1 trillion), the BSE data shows.

In April-June quarter (Q1FY24), Dr Reddy’s delivered strong sales growth and witnessed robust margin expansion in Q1FY24 driven by market share gains & new product momentum in its US generics business and superior performance in Russia. The company’s management said they are on track in executing their strategy, delivering growth while continuing to invest in future growth drivers and innovation to create sustainable value.

The North America business showed robust 27 per cent quarter-on-quarter (QoQ) growth, amounting to $390 million, driven by new product launches, continued momentum in existing products, and favorable forex rates. However, there was some offset due to price erosion. Gross margin in FY24 is expected to be in the 56 per cent-59 per cent range, driven by the softening of solvent prices, freight rates, and a better product mix.

Analysts at KRChoksey Shares and Securitie believe the improvement in pricing scenario in US market will improve the company’s profitability and offset the R&D spends. Further, the strategy of investing in various businesses may provide growth in the long term.

Dr Reddy’s’ recent performance has been fuelled by new launches like gRevlimid and windfall from product shortages in US as key bankrupt companies have withdrawn their products. Drug shortages in the US and product launches from their recent acquisition of Mayne Pharma should aid near term performance while launch of complex injectables in US, growing presence in India and China and continued cost optimisation should help growth to sustain on the high base of FY24, analysts at ICICI Securities said.

Analysts at Axis Securities believe the company’s strategy of investing in various businesses may provide growth in the long term. The company is proactively building a global pipeline of biosimilars, developing NCE for immunooncology, and building up a Neutraceuticals portfolio, vaccines, CDMO, and digital healthcare platforms. Dr Reddy’s is planning to launch at least 30 products in the US in FY24. The management believes that complex drugs in the company’s pipeline would help drive revenue growth over the next 4-5 years.