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DRL poised for dominance in domestic, exports and R&D sectors

NetScribes/Prabodh Chandrasekhar

Dr Reddy's Labs will emerge the frontrunner in the domestic formulations market, R&D and exports, say analysts tracking the company.

The company is the market leader in the manufacture of drugs catering to the segments of cancer, diabetes and ulcer and shows a topline growth of 25 per cent annually. Currently, Cipla and Ranbaxy are the front-runners in the formulations market.

"DRL will show good growth ahead. It would be the frontrunner in the race to capture the domestic market," said Kavita Thomas, the pharma analyst at First Global India Research, a Bombay-based equity research firm.

The company has expertise in the development of Novel Drug Delivery System and New Chemical Entities. It is the only company in India with two products undergoing phase II trials in the US.

"DRL has discovered two anti-diabetes molecules and has out-licensed to Novo-Nordisk of Denmark. The company has been boasting of some more molecules which are undergoing the initial stages of trials," said Thomas. Novo-Nordisk controls 45 per cent of the global insulin market.

DRL's on the verge of bagging the 180 days marketing exclusivity for its niche category of products. This will act as the right catalyst in its expansion plans in the US generics market.

The company's prospects in R&D related to diabetes and cancer research, are good. It has tied up with Simbec, a premier UK-based research organisation, a recent DSP Merrill Lynch Investment Bankers report said.

On the export front, DRL is entering the markets of US, Europe, Latin America, CIS, China and Africa. "The company's partner Cheminor has not done well for the last two quarters. This will cause some problems in the inorganic growth plans of the company, in the form of mergers and acquisitions in the US," said Thomas.

DRL successfully raised $ 132.8 million, issuing 13.2 million ADS (2 ADS equivalent to 1 share). It plans to invest $ 75 million in mergers and acquisitions.

The balance $ 57.8 million will be invested in R&D activities. "The raised money is slightly below analysts' expectations," said Thomas.

DRL plans to invest $30 million of the total $57.8 million in phase I and II A clinical trials for the discovered molecules and developed exclusively by it.

The investment banker DSP Merrill Lynch in its latest report (dated May 10, 2001) on DRL estimates, expects it to achieve sales of $ 25 billion by 2005 in the US alone. It further states that the company will witness an earnings growth of 30.4 per cent over a period of next five years.

In March 2000, DRL had shown a return on capital employed of 16 per cent. DSPML expects it to rise to 27 per cent by March 2005. DSPML projects a topline of Rs 8.9 billion and a bottomline of Rs 1.3 billion for DRL.

The DRL scrip was trading at Rs 1,236 at 12.30 pm on the Bombay Stock Exchange at Friday, up Rs 65.95 over the previous close on Friday.

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