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Dr Reddy’s geared for better FY11

Dr Reddy’s geared for better FY11
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First Published: Thu, May 06 2010. 10 39 PM IST

Updated: Thu, May 06 2010. 10 39 PM IST
The financial performance of Dr Reddy’s Laboratories Ltd (DRL) in fiscal 2011 will be boosted by new product launches in the US generic drugs market, better operational
efficiencies and faster growth in geographies such as India and Russia. The drug maker reported a 17% decline in revenue to Rs1,642 crore in the fourth quarter. But this was chiefly due to the revenue it earned during the exclusivity period from sumatriptan; the exclusive marketing period for the migraine drug has since ended. Barring that, sales are up by 5% over a year ago and by 21% on a sequential basis.
DRL’s US market generics revenue has risen by 23% on a sequential basis, but its European business declined by 13%. The US market will be a key contributor to growth in 2011, with around 13 products expected to be launched. In Europe, the German business continued to see erosion due to a shift to the tender business. The company expects the current year to see a marginal decline too. However, the impairment charges will be lower in fiscal 2011, with major provisions made in 2010 itself. Also, DRL has reduced its workforce during 2010 and is shifting production of several products to India, lowering costs. Thus, the impact on profit should be lower in 2011.
Graphic: Ahmed Raza Khan / Mint
India and Russia were two other markets which did very well during the year, with sales growing by 20% respectively. In Russia, growth was chiefly due to price increases and DRL plans to sustain growth by expanding its over-the-counter product portfolio, improve product mix and in-licence products. In India, it launched 62 new products, with sales growth largely volume-led and it expects to maintain growth in the current year as well. Thus, DRL’s global generics business, which contributed nearly 70% of sales in fiscal 2010, looks set for a good show in the year ahead.
Its other key business segment is the pharmaceutical services and active ingredients business. This business was weak, with annual sales growth of only 9% while quarterly sales declined marginally, on a sequential basis. DRL also said it has made an initial shipment under the agreement it has with GlaxoSmithKline Plc and more shipments will follow. This tie-up will become a significant contributor to growth only after a few years. Among other things to look forward to, it expects to announce the feedback it gets from regulators on its new molecule balaglitazone in the near future. After achieving a 17% adjusted return on capital employed in 2010, DRl is projecting a figure of 18-22% in 2011.
With its strategy in place, key factors governing its performance will be its ability to execute this strategy and manage uncertainties such as litigation.
Write to us at marktomarket@livemint.com
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First Published: Thu, May 06 2010. 10 39 PM IST