Dr. Reddy’s Posts Solid Growth in First Quarter of Fiscal 2010
Today morning,
Dr. Reddy’s Laboratories (
) announced results for the first quarter ended June 30, 2009. The company posted impressive results with both revenue and earnings growing on a year-over-year basis. While total revenues came in at $381 million, up 21% y-o-y, the company reported earnings of $0.30 per diluted share, up 120% y-o-y.
The company reports revenues from two segments: Global Generics and Pharmaceutical Services and Active Ingredients (PSAI). Revenues from the Global Generics business grew 27% to $273 million. Existing products and sumatriptan -- RDY’s generic version of
GlaxoSmithKline’s (
) Imitrex -- were the main growth drivers in this segment.
However, revenues from the betapharm business continued to disappoint, with sales declining 36% to $34 billion. Performance in Russia and other CIS markets also lagged below expectations, with revenues declining 3% to $39 million.
Meanwhile, we were pleased to see an improvement in the company’s performance in India. Revenues increased 9% to $50 million. The business was facing a slowdown due to a delay in new product launches and a change in the company’s supply chain model. RDY has been working on turning around the business and performance should continue improving in the second quarter of fiscal 2010.
The PSAI segment posted revenues of $102 million, up 6%. Products like Gemcitabine, Montelukast, Sumatriptan and Levetiracetam drove growth in this segment.
Gross margins improved by 36% during the reported quarter mainly due to higher margins on sumatriptan. Selling, general and administrative (SG&A) expenses increased 17% to $124 million. These included costs incurred by the company related to the closure of its Atlanta research facility, and exit costs associated with the cutting down of its sales force at betapharm.
R&D expenses declined 6% to $21 million. Earlier this year, the company had announced its intention to reduce its exposure to high-risk R&D projects.
Going forward, we believe the company remains on track to achieve its previously announced revenue guidance of 10% growth in fiscal 2010. RDY should continue to benefit from the Imitrex launch as additional players are not expected to enter the market prior to the first week of August. Besides this, the launch of generic Omeprazole OTC should also boost revenues. We maintain our Hold rating on the stock.
