Dr. Reddy's Misses Q4 Earnings Ests, Beats on Revs - Analyst Blog

Dr. Reddy's Laboratories RDY reported fourth quarter fiscal 2014 (ended Mar 31, 2014) earnings per American Depositary Share ADS of 47 cents, missing the Zacks Consensus Estimate of 52 cents. Earnings during the quarter were below the year-ago figure of 56 cents per ADS.

The company reported revenues of $580 million during the quarter, reflecting a year-over-year increase of 4% and above the Zacks Consensus Estimate of $571 million.

For fiscal 2014, Dr. Reddy's earnings were $2.10 per ADS, up 28% year over year but short of the Zacks Consensus Estimate of $2.18. Revenues for fiscal 2014 were up 14% year over year to $2.2 billion, beating the Zacks Consensus Estimate of $2.15 billion.

Dr. Reddy's launched 13 new generic products, filed 22 registrations for new products and also filed 29 drug master files (DMFs) globally in the fourth quarter.

Fiscal 2014 in Detail

Dr. Reddy's reports revenues under three segments – Global Generics, Pharmaceutical Services & Active Ingredients (PSAI) and Proprietary Products and Others. Revenues at the Global Generics segment were up 27% to $1.8 billion. Strong sales in North America and emerging markets primarily led to the upbeat Global Generics revenues.

Generics revenues increased in North America (up 46%), Russia (up 16%), other CIS (Commonwealth of Independent States) markets (up 22%), India (up 8%) and the rest of the world/RoW (up 33%). 

PSAI revenues fell 22% to $400 million during the fiscal year due to soft demand from key customers and fewer launches. Revenues in the Proprietary Products and Others segment inched up 1% to $51 million during the fiscal year.

Selling, general and administration (SG&A) expenses including amortization amounted to $646 million, reflecting an increase of 13%. The increase was due to annual increments, additional labor deployment, marketing expenses and rupee depreciation against the dollar. Research and development (R&D) expenses increased 62% to $207 million driven by planned R&D activities.

During the fiscal year, Dr. Reddy's made 13 filings in the U.S. The company has 62 abbreviated new drug application (ANDAs) pending approval with the U.S. Food and Drug Administration (FDA) of which 39 are Para IV filings and 9 are first-to-file.

The stock carries a Zacks Rank #3 (Hold). We are pleased with the Generic segment's performance in North America. Dr. Reddy's is progressing toward a greater mix of complex generics and limited competition products to its portfolio.

However, investors looking for better-ranked stocks may consider companies like Mallinckrodt MNK, Akorn, Inc. AKRX and Allergan AGN. Akorn carries a Zacks Rank #2 (Buy) while Allergan and Mallinckrodt carry a Zacks Rank #1 (Strong Buy).