Dr Reddy's Research Foundation, the research arm of Dr Reddy's Laboratories (DRL), announced the release of a new product, DRF 2725, a blood glucose, to its Danish partner, Novo Nordisk, last week. The move gave a significant boost to the bottomline of DRL.
Brokers say that the poor sentiment in the capital market took off the fizz from the stock. On the NSE, the scrip slumped from a peak of Rs 570.30 on Monday to Rs 526.15 on Friday, August 14, 1998. The stock witnessed trading in 1,69,000 shares. It closed on the BSE at Rs 531.25 and witnessed trading in 1,56,000 shares.
The stock has risen substantially in the past two months. In July, the stock was traded at around Rs 390-levels. The counter has witnessed a more than 40 per cent jump in the market price.
Brokers say that a foreign institutional investor has booked profits in the counter as they found easy buyers for the stock at these levels.
"The market sentiment was weak last week. There were very few stocks which stayed firm. In a market where everyone is a seller, Dr Reddy's Laboratories at least found buyers at lower levels due to news of payments from Novo Nordisk," a dealer at a leading institutional brokerage said.
An interesting aspect, analysts say, about the deal is that the sum the company received has remain undisclosed. Company officials are tight-lipped about the payment received towards the shipment of the drug.
"The agreement with regard to the payment is confidential," a senior company officials had said earlier. DRL had received $ 4.25 million for the release of the first product, DRF 2593, from Novo Nordisk.
Analysts expect the company to receive a huge sum through its licensing agreement with Novo Nordisk. "The current instalment is merely a small portion of the money DRL will receive when these drugs become commercially viable," an analyst with a leading foreign brokerage said.
Analysts opine that the company will witness a consistent rise in its net profits in the next three years due to the pro-active steps initiated by the management. "Improvement in DRL's valuation will happen due to the management's decision to invest in the treasury market and accept past losses. Aggressive brand acquisitions and marketing will support high domestic sales growth. The new formulation unit will enhance DRL's generic formulation exports," says Ashit Kothari, analyst, Stewart & Mackertich Research, in his report about DRL.
Kothari expects the company to register a growth of 22 per cent in its gross sales and 30 per cent in net profit yoy over FY 1998-2000.
