Dr. Reddy Needs an Amnesia Pill
By
Brian Orelli
May 21, 2008
|
Dr. Reddy's Laboratories (NYSE: RDY) capped off a tough fiscal year with another quarter of negative year-over-year revenue growth. Unfortunately, Dr. Reddy's fiscal 2007 was so stellar because of a pair of authorized generics from Merck (NYSE: MRK), as well as the exclusive marketing of its generic version of GlaxoSmithKline's (NYSE: GSK) Zofran. Matching the 2007 top line in its just-completed 2008 fiscal year would've been nearly impossible.
For the year, revenue slipped 23% year over year. Most of the lost revenue owed to lower U.S. sales; India and Russia are still booming, bringing in 16% and 13% year-over-year growth, respectively. Even growth in U.S. sales is looking pretty good, coming in at 39% year over year if you exclude the one-time opportunities from the prior year.
The only place that's really slacking is Germany, where prices have taken a severe beating. While Dr. Reddy's increased its volume by 26% in the last fiscal year, revenue rose only about 2.5% in rupee terms. Future growth in Germany isn't looking too hot, either; prices are expected to drop another 6% to 8% next month.
The good news is that the difficult year-over-year comparisons are finished. Dr. Reddy's expects that revenue should grow 25% in its next fiscal year, and the company recently purchased manufacturing plants from BASF and Dow Chemical (NYSE: DOW) to provide for the increased demand. It's also planning on launching more biogeneric products in India while the industry waits for the U.S. to open its doors to such products.
If Dr. Reddy's can keep expenses down and grow its bottom line by 25% or more, its current P/E around 22 looks pretty cheap. Compare that number to Teva Pharmaceuticals (Nasdaq: TEVA), which has a similar P/E but slower expected growth, or Barr Labs (NYSE: BRL) with its P/E hovering around 32, and slow growth expected this year.
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