Dr Reddy’s Laboratories (DRL), India’s third-largest pharma company, has seen a sharp rise of 25% in its stock price over the past fifteen
trading sessions. The company’s stock price has vaulted on rumours of a possible promoter stake sale of 5% to GlaxoSmithKline (GSK), one of the world’s top pharma players. The tide has been steadily turning for DRL.

DRL, which earns around one-thirds of its revenues from the US market, is expected to witness improvement in its US business. Recovery in business conditions and expected one-off gains from the launch of generics are factors, which could boost the company’s fortunes near term. Besides Sumatriptan, Omeprazole — a drug used to treat acidity-linked inflammation and ulcers, and Fondaparinux — a medicine that prevents blood clots are expected to be key upcoming-generic drug opportunities for the company. The company, which recently recalled four products from the US market, is yet to face any regulatory action on the part of the US FDA.

Improved performance in the US and domestic markets is likely to be growth drivers for the company. With its prospects looking up, the stock has got revalued. However, the company’s subsidiary Betapharm, is still facing pressure in the German market. Though the company has taken steps to control costs, profitability has been impacted due to changed conditions in the German pharma market. While the subsidiary has started supplying for the AOK (health insurance major) tender, volumes for non-AOK products have fallen. Fortunately, Betapharm contributes only around 10% to DRL’s topline and far less to the bottom line.

DRL, which earlier had limited focus on its domestic business, has undertaken efforts to improve its Indian business. In recent months, the company has also streamlined its R&D operations by closing its overseas R&D unit and integrating its drug discovery operations into one unit. In a recent move, DRL signed up with GSK to develop and market select products across emerging markets outside India. Investors will continue to benefit further in case of a possible buyout of the company by an MNC.