The mass market approach has seen the company launch a slew of products and also get revenue traction.
The share price of Dr Reddy’s Laboratories continues its northward movement, outperforming the markets and hitting all-time highs, completely immune to the vagaries of the market place. Unaffected by the volatile climate, the share price has been on the rise since March 31, gaining 35 per cent from the Rs 1,135-level to the highs of Rs 1,500-levels. The shift from a specific therapeutic area-based approach to a mass-market strategy seems to be paying.
Incrementally, it has been found that therapeutic specific products are being prescribed by generalists, say analysts at Nomura. The company is filling in the gaps in the current product portfolio and that is reflected in 62 launches in financial year 2010, from 36 launches in the previous year. Traction was also provided by the US markets. Financial results showing sustained revival in the domestic formulation business further catalysed the upside. The horror of Beta Pharma, its European arm, which dented last year’s results, seems to be over with one-ime write offs.
DRL is aggressive towards domestic growth. In the March quarter,it grew its domestic business by 26 per cent to Rs 550 crore. It plans launches of new branded formulations and further additions to its field force that had already reached 3,000 in the last quarter, more than double from the previous year. Operating margins in excess of 20 percent are expected to be maintained by the company. Due to absence of revenue from any exclusive product, the generic business reported a decline of 45 per cent in the March quarter. However, the generic business opportunity will be attractive, as blockbuster drugs worth $25-30 billion go off-patent every year over the next three years. The company has already indicated a likelihood of return on capital employed at 25 per cent and this is a significant number. Its enterprise value is 3.2 times its 2009-10 sales and this is considered attractive by analysts, as Sun Pharma has the same multiple at 7.9 times and Piramal’s sale to Abbot happened at almost nine times.
