Dr. Reddy’s Laboratories: Swing traders get ready, Your favorite stock (DRL) is aiming a major breakout.

Incorporated in the year 1984, Dr. Reddy’s Laboratories Ltd (DRL) is an Indian pharmaceutical manufacturer headquartered in Hyderabad, India products and services including APIs, generics, branded generics, biosimilars and OTC. DLR major therapeutic areas of focus are gastrointestinal, cardiovascular, diabetology, oncology, pain management and dermatology. The firms’ major markets include – USA, India, Russia & CIS countries, China, Brazil and Europe.

Dr Reddy’s (DRL) revenue consists of US (47%), India (17%), Europe Market Generic (7%), Emerging Markets Generic (+18%) PSAI (+10%)

Revenue Analysis

Q1FY25 consolidated revenues at ₹ 76.7 billion, YoY growth of 14% and QoQ growth of 8%. The growth was largely driven by growth in global generics revenues in North America as well as India.

Global Generics (GG)

Q1FY25 revenues at ₹ 68.9 billion, YoY growth of 15% and QoQ growth of 13%.

North America
• Q1FY25 revenues at ₹ 38.5 billion, YoY growth of 20% and QoQ growth of 18%.
• During the quarter, DRL launched 3 new products in the U.S.
• During the quarter, DRL filed one new Abbreviated New Drug Application (ANDA) with the U.S. FDA. As of June 30, 2024, 80 generic filings were approvals pending from the U.S. FDA. These comprise of 75 ANDAs and five New Drug Applications (NDAs) filed under the Section 505(b)(2) route of the US Federal Food, Drug, and Cosmetic Act. Of the 75 ANDAs, 45 are Paragraph IV applications, and DRL believes that 23 of these have the ‘First to File’ status.

Europe

• Q1FY25 revenues at ₹ 5.3 billion, YoY growth of 4% and sequential growth of 1%. Growth was primarily on account of improvement in base business volumes, new product launches, partly offset by price erosion.
• Germany at ₹ 2.8 billion, YoY growth of 14% and QoQ decline of 1%.
• UK at ₹ 1.6 billion, YoY decline of 7% and QoQ growth of 5%.
• Rest of Europe at ₹ 0.9 billion, YoY growth of 1% and flat QoQ.
• During the quarter, DRL launched 12 new products across various countries in the region.

India
• Q1FY25 revenues at ₹ 13.3 billion, YoY growth of 15% and QoQ growth of 18%. YoY growth was mainly on account of new product launches including the recently in-licensed vaccine portfolio. As per IQVIA, our IPM rank was at 10 for the quarter.
• During the quarter, DRL launched 13 new brands in the country, in addition to exclusive rights to promote and distribute Sanofi’s vaccine brands.

Emerging Markets
• Q1FY25 revenues at ₹ 11.9 billion, YoY growth of 3% and QoQ decline of 2%. YoY growth is attributable to market share expansion and new product launches, partly offset by unfavorable forex and price erosion.
• Revenues from Russia at ₹ 5.5 billion, YoY decline of 2% and QoQ growth of 11%.
• YoY decline was majorly due to unfavorable currency exchange rate movements, partially offset by price increases and higher base business volumes.
• QoQ growth was driven by increase in base business volumes.
• Revenues from other Commonwealth of Independent States (CIS) countries and Romania at ₹ 1.9 billion, decline of 2% YoY and 11% QoQ.
• YoY decline was primarily on account of decline in base business volumes, partly offset by increase in prices.
• QoQ decline was driven by decline in base business volumes.
• Revenues from Rest of World (RoW) territories at ₹ 4.4 billion, growth of 11% YoY and a decline of 11% QoQ.
• YoY growth was largely attributable to increase in volumes of base business, contribution from new products, partly offset by price erosion.
• QoQ decline was primarily driven by decline in base business volumes and erosion.
• During the quarter, DRL launched 17 new products across various countries in the region.

Pharmaceutical Services and Active Ingredients (PSAI)
• Q1FY25 revenues at ₹ 7.7 billion, with a growth of 14% YoY and a decline of 7% QoQ. YoY growth was mainly driven by improved volumes in base business, and contribution from new products, QoQ decline was driven by decrease in volumes of certain existing products.

• During the quarter, DRL filed 11 Drug Master Files (DMFs) globally.

Income Statement Highlights:

Gross Margin

Q1FY25 at 60.4% (GG: 64.7%, PSAI: 23.1%), an increase of 170 basis points (bps) over previous year and 183 bps sequentially. The increase is on account of favourable product mix and overhead leverage, partially offset by price erosion in generics markets.

Selling, General & Administrative (SG&A) Expenses

Q1FY25 at ₹ 22.7 billion, YoY increase of 28% and 11% QoQ.

The increase is primarily on account of investment in new business initiatives, higher freight costs, business integration costs, annual merit increases, and building commercial capabilities to enhance operational efficiencies.

Research & Development (R&D) Expenses

Q1FY25 at ₹ 6.2 billion. As % to Revenues – Q1FY25: 8.1% | Q1FY24: 7.4% | Q4FY24: 9.7%.
R&D investments is reflecting our biosimilars pipeline, development efforts across generics as well as our novel oncology assets, which will support future growth.

Profit before Tax

Q1FY25 at ₹ 18.8 billion, a YoY growth of 2% and a QoQ growth of 18%.
As % to Revenues – Q1FY25: 24.5% | Q1FY24: 27.4% | Q4FY24: 22.6%.

Profit after Tax
Q1FY25 at ₹ 13.9 billion, a YoY decline of 1% and a QoQ growth of 7%.
As % to Revenues – Q1FY25: 18.1% | Q1FY24: 20.8% | Q4FY24: 18.5%.
The Effective Tax Rate (ETR) for the quarter was 26.0% as compared to 24.0% in Q1FY24.

Other Highlights:
Earnings before Interest, Tax, Depreciation and Amortization (EBITDA)
Q1FY25 at ₹ 21.6 billion, YoY growth of 1% and QoQ growth of 15%.
As % to Revenues – Q1FY25: 28.2% | Q1FY24: 31.7% | Q4FY24: 26.4%.

Key Business Highlights:

• Acquired Nicotinell® and related brands in the Nicotine Replacement Therapy category in markets outside the US from Haleon plc for a total consideration of GBP 500 million, with an upfront cash payment of GBP 458 million and performance-based contingent payments of up to GBP 42 million, payable in 2025 and 2026. The transaction is expected to close in early Q4 of calendar year 2024.

• Entered into a joint venture agreement with Nestlé India to bring science-backed nutritional portfolio to more consumers in India. The JV is expected to become operational in Q2FY25.

• Partnered with Novartis Pharma LLC to distribute two of their leading anti-diabetes brands, Galvus® and Galvus Met®, in the Russian retail market.

• Received exclusive rights from Ingenus Pharmaceuticals to commercialize Cyclophosphamide Injection in the US.

• Collaborated with Alvotech for commercialization of their denosumab biosimilar candidate in the US on an exclusive basis, as well as in Europe and UK.

• Launched drug-free migraine management device, Nerivio®, in Germany, Spain, UK and South Africa.

• Inaugurated a 70,000 sq.ft. state-of-the-art Biologics facility of Aurigene Pharmaceutical Services in Genome Valley, Hyderabad, India. The process and analytical development laboratories are operational while the commissioning of manufacturing capacity will be completed in 2024.

 

Technically, brace yourselves for an impulse uptrend seen forming on the daily time scale, with positive SAR series. The sequence of higher high/low intact on all time frames.

Add to that a bullish divergence and a rising stochastic signal (on weekly charts) with recent increase in volumes signaling a larger rebound. The 200 days Exponential Moving Average (EMA) of the stock on the daily chart is currently at 6147-6150 zone. Any sharp corrective declines to 6100-6200 zone will be an opportunity to initiate aggressive long positions.

Simply buy at CMP, and on dips between 6600-6750 zone, targeting 7301/7551 mark and then at 8100 mark. Stop below 6459. Holding Period: 9-12 Months.

 

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This does not construe to be an investment advice. Stock market investments are subject to market risks. All information is a point of view, and is for educational and informational use only. The author accepts no liability for any interpretation of articles or comments on this platform being used for actual investments.

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