Friday, May 22, 2009

Investment Pick: Dr.Reddy’s Laboratorie

If one looks at the fourth quarter performance of Dr.Reddy’s Laboratories for period ended 31st march 2009, on a QoQ, one would tend to believe that the company has ended the year on a positive note. A look at the standalone figures of the company for Q4FY09 indicates that QoQ, net sales rose 10% but net profit surged by a whopping 51%. On a YoY, the picture is a but more subdued. Though net sales rose 16%, net profit declined 3.7% at Rs.156.17 crore.

But the picture for the FY09 is not good. On a consolidated basis, it posted a net loss of Rs.917.24 crore for the year ended March 31, 2009 as compared to a net profit of Rs 438.1 crore for the previous corresponding year. This loss is directly attributed to its German company, which has been its profit drainer for some time now. During the year, there have been certain significant changes in the German generics market such as reference price cuts, increased presence of discount contracts, announcement of large sales tender from AOK etc. Due to these adverse market developments, the company tested its carrying value of intangibles and goodwill at the betapharm cash generating unit for impairment. The recoverable value of these intangibles was determined to be the Value-In-Use (“ViU”). The impairment testing indicated that the carrying value of certain product related intangibles was higher than its recoverable value and accordingly, the company has recorded an impairment loss with respect to such intangible assets amounting to Rs.86.24 crore. Additionally, as regards goodwill, the carrying value of the betapharm CGU was also higher than the recoverable amount resulting in a goodwill impairment of Rs.1376.60 crore. The company has stated that this is a one-time non-cash charge in the income statement and incorporates the provisions of applicable accounting standards.

Consolidated net sales for FY09 was up 38% at Rs.6790.37 crore. And this surge was mainly on account of launch of the authorized generic version of GlaxoSmithKline’s Imitrex in late November 2008. Growth in North America and Russia also helped the sales. Revenue from global generics business was at Rs.4,980 crore in FY09, up 51%. Revenues from pharmaceutical services and active ingredients increased by 13% to Rs.1,880 crore.

The company spent Rs.409.27 crore on R&D during the year, up 19% over FY08 R&D spend. During the year, the company launched 116 new generic products, filed 110 new generic product registrations and filed 55 DMFs globally.
The company does not foresee any more such write-offs in the future; this was just a one-time blip. It remains a fundamentally good stock; one can accumulate for long term at every decline.
Source: (by S P Tulsian)

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