Dr Reddy's Laboratories (DRL), the second largest pharmaceutical company in India after Sun Pharmaceutical Industries, is surging ahead with strong domestic sales as well as exports to overseas markets with clear focus on research and development, expansion, alliances and new products. After good financial performance in the first quarter ended June 2015 as well as for full year 2014-15, DRL scrip moved up strongly and touched its yearly high level at Rs.4084.95 with full market capitalization of over Rs.68,550 crore on the BSE. With 25.5 per cent equity holding with promoters and 37.8 per cent by foreign institutional investors, DRL share of Rs.5 each is crossed milestone of Rs.4000 on July 31, 2015.

Considering the changing healthcare scenario, DRL has changed its corporate brand identity recently with new logo which is an expression of empathy and dynamism. The new logo keeps patients at the center of everything that DRL does. The objective of the re-branding exercise is to derive a unifying, patient-centric approach, to meet new and daunting challenges that patients are facing.

DRL has posted satisfactory financial performance during the first quarter ended June 2015. Its consolidated net profit went up by 13.7 per cent to Rs.626 crore from Rs.550 crore in the corresponding period of last year. EBITDA improved by 12 per cent to Rs.990 crore. Its consolidated net sales increased by 6.8 per cent to Rs.3,758 crore from Rs.3,518 crore. EPS improved to Rs.36.71 from Rs.32.34 in the last period.

DRL's research and development (R&D) expenditure increased by 13.2 per cent to Rs.438.69 crore during the first quarter ended June 2015 from Rs.387.53 crore. DRL filed 6 new products in the US. Cumulatively, 73 ANDAs are pending for approval with the US FDA, of which 47 are Para IVs. The company filed 9 DMFs and its cumulative number of DMF filings reached at 747.

Overall sluggish economic conditions, cost cutting measures adopted by several governments, stiff competition, stringent approval system followed by highly regulated market, foreign exchange fluctuations, New Drug Pricing Policy (DPCO) in India and legal challenges put pressure on bottom line of major pharma companies. The overall growth is restricted to single digit during 2014-15 and several major Indian as well as International players suffered heavy setback. To overcome these odds, companies have undertaken restructuring of there business activities through divestments, alliances and entry in new geographies with new affordable products.

DRL, after successfully completing 31 years as major generic player, has notched up consolidated net sales of Rs.14,908 during the year ended March 2015 as against Rs.13,281 crore in the previous year, a growth of 12.3 per cent. Sales included service income of Rs.169 crore and license fees of Rs.37 crore. Its global generics' sales improved by 14.8 per cent to Rs.12,148 crore from Rs.10,581 crore and that of Pharmaceutical Services & Active Ingredients (PSAI) improved by 8.7 per cent Rs.3,144 crore from Rs.2,891 crore. The sales of proprietary products, however, declined to Rs.101 crore from Rs.178 crore.

Its EBIDTA moved up by 10.2 per cent to Rs.3,768 crore from Rs.3,421 crore in the previous year. Its finance cost declined to Rs.108 crore from Rs.127 crore and depreciation provision increased to Rs.760 crore as against 648 crore. DRL's tax provision declined by 17.6 per cent to Rs.563 crore as against Rs.683 crore. Thus reduction in interest cost and taxation assisted well to generate higher net profit of Rs.2,336 crore as compared to Rs.1,962 crore, a growth of 19 per cent. With better pushed to bottom line, its EPS improved to Rs.137.18 from Rs.115.45 and company management declared equity dividend of Rs.20 per share of Rs.5 each for the year 2014-15.

The company has strong presence in highly regulated markets like US, UK and Germany and has established leading position in also in Russia, Venezuela, Romania and South Africa. DRL launched 12 products including Valganciclovir and Sirolimus in US market. Its generics sales in North America increased by 17 per cent to Rs.6,472 crore from Rs.5,530 crore in the previous year. This worked out to 54 per cent of its global generic sales. Similarly, its PSAI sales in North America moved up by 21 per cent to Rs.461 crore from Rs.382 crore. Its full year European sales of generics improved by only 3 per cent to Rs.719 crore.

Indian sales moved up by 14 per cent to Rs.1,787 crore from Rs.1,571 crore due to increased productivity and launch of 18 new product. The company launched Resof for hepatitis C, Melgain for the treatment of white patches on skin or vitiligo, deflux for the treatment of vesico-uretic reflux, reclimet XR for type-2 diabetes and Acrofy for acne. It top brand Omez is moving ahead strongly despite sharp price reductions.

However, depreciation of rouble against US Dollar has put pressure on Russian operations and its sales in Russia and other CIS market declined by 11 per cent to Rs.1,771 crore. Ukraine operations were under pressure due to political and military conflict and that in Venezuels impacted due to multiple administered exchange rates.

Meanwhile, DRL has initiated a voluntary recall of Divalproex based on observations related to the products' dissolution specifications during June 2015. The company is taking steps to resolve the problem with US FDA.

The company's consolidated R&D expenditure increased by 41 per cent to Rs.1,745 crore during 2014-15 and accounted 11.8 per cent of sales. With focus on R&D and higher spending on R&D, DRL has filed 13 products in US during 2014-15 and its cumulative filing reached at 68 ANDA. Of these, 43 are Para IVs and DRL expects 13 to have 'First to File' status.

As against the equity capital of Rs.85.20 crore, DRL has built up strong reserves position of Rs.9,768 crore during 2014-15. Its reserves and surplus improved by 25.6 per cent from Rs.7,780 crore in the previous year. Its capital work in progress amounted to Rs.529 crore as against Rs.639 crore. Thus, the focus on R&D, launching of new products in domestic market as well as highly regulated markets and strong financial position, the investors will get better returns from investments in near future.