Dr. Reddy's Laboratories Should Continue To Gain Market Share In Lucrative Markets

May.25.12 | About: Dr. Reddy's (RDY)

Dr. Reddy's Laboratories (NYSE:RDY), India's second-largest pharmaceutical company, recently reported a fourth-quarter and full-year 2012 performance that beat expectations on revenues but missed estimates on earnings.

Revenues for the full year came in at $1.9 billion, a strong growth of 20 percent over the previous year. Revenues for the quarter, ending March 21, reached $522 million, an increase of 32 percent year over year. The company disappointed investors with a meager 2.7 percent rise in fourth-quarter earnings, but mostly because of a one-time charge.

Revenues from the company's Global Generics segment came in at $361 million for the quarter, an increase of 30 percent YoY, largely driven by demand in the U.S. and Russia.

Gross margins declined, as some drugs experienced price erosion. The company reduced its net debt by USD154 million to USD276 million.

Dr. Reddy's management said that it expected about USD2.5 billion in sales this year, noting a favorable outcome of the U.S. Food and Drug Administration's inspection of its new facility in the growing market of Mexico.

Dr. Reddy's primary business lines are in the U.S., Europe, Russia, and India, with 60 percent of the firm's sales derived from outside of its home market. The Hyderabad-based company boasts a strong research and development unit focused on the treatment of cancer, diabetes, cardiovascular diseases, inflammation, and bacterial infections.

The company has been a big beneficiary of the rise of the Indian generic pharmaceutical industry. Because of the affordability of their products and the technological prowess with which they're produced, Indian pharmaceutical firms should continue to gain market share in developed markets, especially the U.S. Generic drugs' share of the U.S. pharmaceutical market is around 19 percent and growing with each passing year.

Indian companies earn roughly 29 percent of their revenue from the U.S., which means America will continue to be an important market for the Subcontinent's firms. Indian companies will expand their margins as they further establish themselves in the U.S.

Dr. Reddy's stock has produced substantial gains over the past six years, but there's more upside to come. Although there may be periodic pauses in the stock's ascent, Dr. Reddy's remains a top Indian stock market pick of mine.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.