Why Dr Reddy's Share Price is Rising

More often than not, investors have always remained wary of the pharma sector because of the stringent regulations.

Even a healthy growing pharma company may face severe turbulence out of the blue if it fails to meet a certain set of regulations.

But there's one pharma company that has always found favour and remained on investors radar. Even more so now as shares of the company have rallied more than 18% in 2023 so far.

The company in question is largecap pharma firm Dr Reddy's Laboratories.

The company's stock price has hit new 52-week highs multiple times this month.

So, what's driving the rally?

Let's find out...

#1 Strong FY23 performance

The financial year 2023 was one of the best years for Dr Reddy's Laboratories.

The company's revenue came in at Rs 245.9 billion (bn) and grew by 15% on a YoY basis. The growth was mainly driven by new product launches, partly offset by price erosion.

In the year under review, its total net profit more than doubled and grew by 107% on a YoY basis to Rs 45.1 bn. The increase was driven by new product sales with higher gross margins, higher government incentives, and favourable foreign exchange.

It launched 10 new products during the quarter and 94 new products during the year across various countries of emerging markets.

It closed the financial year with double-digit top-line and bottom-line growth, with earnings before interest, tax, depreciation, amortisation (EBITDA) and return on capital earnings (ROCE) margin exceeding the 25% levels.

This impressive performance has resulted in healthy cash flow.

#2 Foray in trade generics business

Last week on Friday, the drug maker announced that it has entered the trade generics business in India with the launch of its new dedicated division RGenX.

Trade generics are directly sold through distributors, and are not promoted like branded medicines.

Dr Reddy's Laboratories aims to roll out its trade generics across cities and towns in India, including rural areas. The company said it will work closely with its channel partners to ensure the availability of its products.

Through this new trade generics division, it aims to provide patients with access to a wider range of products and increased affordability.

The new business will further help the company's goal of reaching over 1.5 bn patients by 2030.

#3 Back-to-back approvals by USFDA

The US Food and Drug Administration (USFDA) is the biggest obstacle for pharma companies. Strict inspections by USFDA often bring even the strongest of pharma companies to their knees.

However, recently, Dr Reddy's Laboratories came out of USFDA's scrutiny unscathed.

On 17 June 2023, the Nifty-50 company announced that its active pharmaceutical ingredient (API) manufacturing facility in Bollaram, Hyderabad (CTO-3), completed USFDA's good manufacturing practices inspection with zero observations.

The inspection was conducted from 12 June 2023 to 16 June 2023.

The company also said it has received an establishment inspection report (EIR) for its formulations manufacturing unit in Srikakulam (FTO SEZ PU2), Andhra Pradesh. EIR means the closure of inspection.

The agency has classified the inspection as Voluntary Action Indicated (VAI) and concluded that the inspection is closed, the company said in a statement to stock exchanges.

The successful clearance of GMP inspection will enable Dr Reddy's Laboratories to launch new products and mitigate the impact of price.

#4 Strong growth prospects in the medium term

Dr Reddy's diversified global presence, capability, and strong balance sheet make it a partner of choice for various business partners.

To ensure its position as a partner of choice, the company signed some strategic licensing deals in April 2023, including these:

• With Cardiacare for their wearable atrial fibrillation treatment
• With Theranica for the wearable management of migraine
• With the New Zealand-based WZTL to bring the third generation CAR T asset for clinical trials in India
• With Junshi Bioscience to bring Toripalimab to India and other markets.

Apart from this, the company has also made significant progress in biosimilar business. It completed the phase one study of biosimilar tocilizumab and the global phase three study was initiated.

It received approvals for three products in China, namely Sevelamer, Sitagliptin, and Carboprost, and their partners got GEA approval for Nicergoline tablets.

These approvals can give the company the benefit of early entry into the Chinese markets.

The approvals might turn into a booster for financial performance right from the start of FY24. However, a bigger impact of the approvals might be seen in its FY25 and FY26 financials.

How Dr Reddy's Laboratories share price has performed recently

In the past one month, Dr Reddy's Laboratories share price has gone up by 10.2%. On a YTD basis, it has gained 18.6%.

While in the past one year, it has rallied around 14.8%.

Dr Reddy's Laboratories shares touched a 52-week high of Rs 5,087.4 on 27 June 2023 and a 52-week low of Rs 3,996.1 on 19 September 2022.

About Dr Reddy's Laboratories

Dr Reddy's Laboratories is an Indian multinational pharmaceutical company based in Hyderabad. The company was founded by Kallam Anji Reddy, who previously worked in the mentor institute Indian Drugs and Pharmaceuticals.

Dr. Reddy's manufactures and markets a wide range of pharmaceuticals in India and overseas.

Dr. Reddy's began as a supplier to Indian drug manufacturers, but it soon started exporting to other less-regulated markets that had the advantage of not having to spend time and money on a manufacturing plant that would gain approval from a drug licensing body such as the US Food and Drug Administration (FDA).

To know more about the company, check out the Dr Reddys Laboratories fact sheet and quarterly results on our website.

You can also compare Dr Reddys Laboratories with its peers:

Dr Reddys Laboratories vs Ortin Labs

Dr Reddys Laboratories vs Alkem Laboratories

Happy Investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...