Dr. Reddy's Laboratories Limited (RDY) showcased an extraordinary eleven-fold surge in profit in its fiscal fourth quarter. Besides, the company’s strategic initiatives to broaden its product offerings and market reach could position it for significant growth. Let’s discuss this in detail.
Headquartered in Hyderabad, India, RDY is an integrated pharmaceutical company. Its segments include Global Generics; Pharmaceutical Services and Active Ingredients (PSAI); Proprietary Products; and Others. With ambitious goals, RDY aims to triple its reach and positively impact over 1.50 billion patients by 2030.
Recently, the company reported an almost eleven-fold surge in its fourth-quarter profit, propelled by higher sales in its core North American generic drugs business. Revenue from this segment, comprising nearly half of the total sales, surged 27% to Rs.25.32 billion ($310 million) due to new launches and product expansion.
In India, its revenue from the generic drugs business climbed 32%. Commenting on the results, Co-Chairman & MD, G V Prasad, said, “FY 23 has been a year of record sales, profits and cash flow, driven by our performance in US Generics. We progressed well in our productivity and sustainability agenda."
The company also proposed a final dividend of Rs. 40 per share for the financial year 2023. RDY pays a $0.49 per share dividend annually, which translates to a 0.91% yield on the current price level. Moreover, its dividend payments have grown at a 10.3% CAGR over the past three years.
Shares of RDY have gained 6.7% over the past year to close its last trading session at $53.34.
Let us now delve into additional factors that position RDY as a solid pharmaceutical stock to invest in.
Positive Recent Developments
On February 27, Dr. Reddy's Laboratories SA, a subsidiary of RDY, announced its plan to acquire the U.S. generic prescription product portfolio of Salisbury, Australia-based Mayne Pharma Group Limited (MYX).
The acquisition aims to enhance RDY’s U.S. retail prescription pharmaceutical business by adding products with limited competition. Additionally, it aligns with the company’s commitment to accelerating and expanding the availability of affordable medications for patients.
In addition, on January 13, RDY announced its acquisition of the trademark rights for the breast cancer drug PRIMCYV® from Pfizer Products India Pvt Ltd, specifically for its use in the Indian market. RDY is one of the few companies worldwide to have conducted a bioequivalence study and obtained tentative approval from the USFDA for palbociclib.
By expanding its product portfolio and market presence, RDY is poised to capture a larger share of India’s breast cancer drug market, resulting in increased revenue and potential growth.
Robust Financials
For the fourth quarter of fiscal 2023, which ended on March 31, RDY’s revenue increased 15.9% year-over-year to $766 million. Its gross profit grew 25.1% from the year-ago value to $438 million. Also, the company’s profit before income tax came in at $161 million, up 436.7% from the prior year’s period.
In addition, the company’s profit for the period and EPS rose 963.6% and 1,066.7% year-over-year to $117 million and $0.70, respectively. As of March 31, 2023, the company’s cash and cash equivalents stood at $760 million, compared to $610 million as of December 31, 2022.
Favorable Analyst Estimates
Analysts expect RDY’s revenue to increase 7.5% year-over-year to $3.46 billion for the fiscal year ending March 2025. Likewise, the company’s EPS for the next year is expected to rise 8.8% from the previous year to $2.82. Moreover, the company surpassed the consensus revenue and EPS estimates in three of four trailing quarters, which is impressive.
Discounted Valuation
In terms of forward P/E, RDY is trading at 16.99x, 37.5% lower than the industry average of 27.18x. The stock’s forward EV/Sales of 2.57x is 30.8% lower than the industry average of 3.72x. Also, its forward EV/EBITDA of 10.18x compares with the 13.27x industry average.
Furthermore, RDY’s forward EV/EBIT multiple of 12.81 compares with the industry average of 16.86. Its forward Price/Sales of 2.75x is 33.5% lower than the 4.15x industry average.
Solid Growth Record
Over the past three years, RDY's revenue has increased at a CAGR of 12.1%. Additionally, the company saw EBITDA and EBIT grow at impressive CAGRs of 16.4% and 22%, respectively. Furthermore, RDY's net income increased at a 32.2% CAGR, while EPS surged at a 32.1% CAGR.
Moreover, the company’s total assets have grown consistently over the past three years at a noteworthy CAGR of 16.7%. During the same period, its leveraged cash flow showed a promising CAGR of 12.4%.
High Profitability
RDY’s trailing-12-month gross profit margin of 56.67% is 1.5% higher than the 55.9% industry average. Its trailing-12-month EBITDA margin of 26.77% is significantly higher than the 2.19% industry average. Likewise, the stock’s trailing-12-month asset turnover ratio of 0.80x is 129% higher than the industry average of 0.35x.
Moreover, RDY’s trailing-12-month levered FCF margin of 10.82% compares to the industry average of negative 2.30%. Its trailing-12-month ROCE, ROTC, and ROTA of 21.38%, 14.18%, and 14% compare to the industry averages of negative 43.31%, 23.35%, and 33.39%, respectively.
POWR Ratings Show Promise
RDY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. RDY has a B grade for Value and Quality, consistent with its lower-than-industry valuation and higher-than-industry profitability, respectively. The stock also has a B grade for Stability, in sync with its 24-month beta of 0.40.
RDY is ranked #11 in the 166-stock Medical - Pharmaceuticals industry. Click here to access RDY’s Growth, Momentum, and Sentiment ratings.
View all the top stocks in the Medical – Pharmaceuticals industry here.
Bottom Line
RDY's strategic acquisitions have bolstered its market position and diversified its product portfolio. These initiatives should enable RDY to enter new markets, strengthen its retail pharmaceutical business, and offer cost-effective medications, ultimately driving higher revenue and unlocking new expansion opportunities.
Therefore, I think RDY's solid financial performance, marked by high profitability and a track record of consistent growth, solidifies its position as a compelling buy.
How Does Dr. Reddy's Laboratories Limited (RDY) Stack Up Against Its Peers?
While RDY has an overall POWR Rating of A, equating to a Strong Buy, one could also check out other stocks within the Medical – Pharmaceuticals industry that are overall A (Strong Buy) rated: AbbVie Inc. (ABBV), Novartis AG (NVS) and Bristol-Myers Squibb Co. (BMY).
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RDY shares were trading at $53.41 per share on Friday afternoon, up $0.07 (+0.13%). Year-to-date, RDY has gained 3.21%, versus a 9.79% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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