In contrast to the slight disappointment in the June 2012 quarter, the September quarter has seen a rebound in the company’s US sales. Four product launches in the US during the quarter and increased traction from previous quarter launches boosted Dr Reddy’s North American generics sales by 47% year-on-year to Rs 927 crore (up 17% sequentially). In terms of businesses, Pharmaceutical Sales & Active Ingredients (PSAI) sales also grew 37% year-on-year and supported overall revenues (Rs 2,881 crore), which grew by a strong 27% year-on-year. What’s more? Analysts believe the trend in US and PSAI sales is likely to sustain in the second half of 2012-13, and drive overall performance of Dr Reddy’s.
US growth boosts growth
Two product launches in May namely, generics of Plavix (blood thinning agent) and Tacrolimus (immunosuppressive agent), contributed well to sales growth. Tacrolimus, launched on exclusivity with Mylan Inc, has been able to double market share to 44% during the quarter. The generics of psychiatric treatment drug Geodon, even after end of exclusivity period, saw limited competition (just 2-3 players) helping Dr Reddy’s sustain 23% market share. Analysts at Morgan Stanley had estimated $80 million in annual revenues (from Geodon) post expiry of exclusivity, with 60% net margins for Dr Reddy’s. If competition does not increase, revenues could go up by $30-40 million.
Among limited competition products, Dr Reddy’s has also increase market share in Lansoprazole (anti-ulcer) and Fondaparinaux (anticoagulant). While Dr Reddy’s has launched Lipitor generics though after a delay, it has also filed for launch of Fondaparinaux in European markets.
Going ahead, new products launched in September are likely to boost US sales in second half of FY13. Anti-hypertensive Toprol XL generics, as per Morgan Stanley estimate, are likely to contribute $60-70 million in annual revenues. The anti-bacterial Amoxycillin is also likely to contribute over $20 million in revenues. Besides, recently launched anti-asthmatic Montelukast granule has a market of $61 million.
Further, while US sales were realised at an exchange rate of Rs 49-50 per dollar during the September quarter, analysts estimate the gains from a weak rupee to reflect in the second half of FY13. For FY14, the hedging has been done to Rs 55 levels.
PSAI provides further support
PSAI segment after seeing a tepid growth of 14% in the June quarter saw better traction in the September quarter led by new launches on back of patent expiries. Moreover, Custom synthesis business (25% of PSAI business) benefited from some large orders from large pharma. Management expect base to move up from the current level in the ensuing quarters.
Outlook
Though other markets like India, Russia and Europe disappointed a bit, analysts expect some recovery in the coming months. More importantly, with US and PSAI going strong, overall numbers should be better going ahead.
Dr Reddy’s overall Ebitda margin at 24% improved from 20.7% in September 2011 quarter and 19.7% in June 2012 quarter led by lower selling, general and administrative (SG&A) expenses. Analysts at Kotak Securities attribute this to improved leverage, higher PSAI sales and OTC spends delayed by three months in Russia. Analysts expect margins to sustain. In this light, majority of analysts are positive on the stock.
