Dr Reddy’s Laboratories (RDY) reported second quarter fiscal 2011 earnings per American Depository Share (ADS) of 40 cents compared with earnings of 30 cents in the year-ago period. Higher gross margin led to an increase in earnings.
The company reported quarterly revenues of $420 million, up 2%. Dr Reddy’s reports revenues under two segments – Global Generics and Pharmaceutical Services & Active Ingredients (PSAI). Global Generics segment revenues went up 8% (on an INR basis), while PSAI revenues declined 14% (on an INR basis) during the second quarter.
Generics revenues (on an INR basis) increased 3% in North America, 17% in Russia & other CIS markets and 25% in India, while it declined 17% in Europe. The European market recorded the highest decline among all the regions with Germany being the worst hit with a 26% drop (on an INR basis), partly mitigated by the rest of Europe with a 13% increase.
Margins
Gross profit margin at Dr Reddy’s during the quarter went up to 53% from 47% in the second quarter of 2010. Revenues from new products propelled higher margins.
Selling general and administration expenses amounted to $128 million, reflecting an increase of 7% due to elevated sales activities in India and Russia.
Higher research and development (R&D) activities led to a 32% increase (to $28 million) in R&D expenses.
Our Take
We currently have a Neutral recommendation on Dr Reddy’s. We believe the company is targeting the huge potential in the US generics market in the coming years, as drugs with sales of about $75 billion are slated to lose patent exclusivity.
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