Dr. Reddy's Laboratories (RDY)
Dr. Reddy’s Labs: Reflects the stability of India
By Paul Goodwin, Chief Analyst, Cabot Emerging Markets Investor
From Cabot Wealth Advisory 9/3/15 Sign up for Cabot Wealth Advisory—it’s free!
My stock pick today reflects both the turmoil in China and the stability of India, the Giant in Waiting among emerging markets. It’s Dr. Reddy’s Laboratories (RDY), a diversified drug manufacturer that’s been a solid performer. Here’s some of what I wrote about it on July 16.
Dr. Reddy’s Labs began as a pharmaceutical pirate—it’s as simple as that. Founder Dr. Anji Reddy used his PhD in Chemical Engineering and his experience in a state-owned pharmaceutical company to reverse-engineer Western drugs and figure out the manufacturing process. Then the company just turned the crank.
The world changed for Dr. Reddy’s Labs in 2005 when the Indian government officially agreed to recognize and enforce international drug patents. You would think that this change would have spiked the company’s guns. But strangely enough, it was probably the spur of having to comply with international laws that kicked Dr. Reddy’s Labs onto a development track that has been paying huge dividends ever since.
Dr. Reddy’s is still a major manufacturer of generic drugs, with more than 200 generics marketed in over 20 countries. The company’s products include tablets, capsules, injectables and topical creams that address ailments in gastrointestinal ailments, cardiovascular disease, pain management, oncology, anti-infectives, pediatrics and dermatology. These products bring high-quality, regulatory compliant medicines to millions who might not otherwise be able to afford them.
But the company is now a fully integrated global pharmaceutical company that manufactures active ingredients, does contract research for other drug makers, and researches and markets its own original drugs. Dr. Reddy’s just grossed $1 billion in sales in the U.S. market for the first time, thanks to its fiscal 2015 launch of 12 drugs here.
RDY is a solid business with excellent growth prospects and a small (half-percent annual) dividend. It’s not likely to go on a rampage, but neither is it going to fall on its nose. The stock’s breakout to new all-time highs is a bullish sign, and RDY should have the momentum of the Indian market behind it. We recommend buying RDY here. BUY.
Note: RDY came through the market’s late-August turbulence, and is still in contact with its rising 25-day moving average.
If you were a subscriber to Cabot Emerging Markets Investor I would provide weekly updates on the stock’s progress and how it should be managed. A click on this link will get you started.
By Elyse Andrews, Editor of Cabot Wealth Advisory
From Cabot Wealth Advisory 12/11/10 Sign up for free Cabot Wealth Advisory e-newsletter
A common request from Cabot Wealth Advisory subscribers is for Indian stocks that are likely to do well in future.
Cabot China & Emerging Markets Report, written by Editor Paul Goodwin, is where you’ll find the top stocks from the BRIC (Brazil, Russia, China and India) countries. Paul recommended Indian company Dr. Reddy’s Laboratories (RDY) in November, writing this:
“Dr. Reddy’s still gets 69% of revenues from the sale of generic drugs. But the company is also a contract manufacturer of active pharmaceutical ingredients, finished dosing forms and biotechnology products for other pharmaceutical concerns. And a program of original research into potential treatments for cancer, diabetes, cardiovascular disease, inflammation and bacterial infection has produced a strong pipeline of drugs in clinical trials.
“Dr. Reddy’s Labs has over 40 families of products in distribution in the U.S., and 69 Abbreviated New Drug Applications (ANDAs, which are requests for approval of generic drugs) in submission to the U.S. Food and Drug Administration. Of these applications, 32 are “Paragraph 4” filings (claims that products do not infringe on patents or that the patents are not enforceable) and 19 are “first-time filings.” Outside India, the company also has strong generic drug market positions in Russia, the U.K and Germany.
“While Dr. Reddy’s gets only 2% of revenue from sales of its own proprietary products, the company has used both internal resources and outside acquisitions to increase its original research capability, as well as its generic manufacturing capacity. In 2005, the company bought Roche’s custom pharmaceutical services business for $62 million. And in March 2006, the company sealed its acquisition of Betapharm, the fourth-largest generic drug manufacturer in Germany, and with it Betapharm’s portfolio of over 145 products. A partnership with Argenta Discovery is aimed at development and commercialization of a new treatment for chronic obstructive pulmonary disease.
“The earnings line for Dr. Reddy’s Labs has been improving rapidly with an estimate-beating 41% jump in Q3 earnings reported on October 23. This quarterly report also showed an 8% gain in revenues and a 15.3% after tax profit margin that was the highest in years. Estimates for the full fiscal 2011, which ends in March, are for $1.44 per share, up 251% from the prior year.
“The long-term chart for RDY shows a stock that spent all of 2006 and 2007 and part of 2008 trading sideways in a tight range in the teens, which is appropriate for a steady state company. But after the big correction in 2008, the stock blasted off from its low of 7 and hasn’t made a major correction since. The portfolio owned the stock earlier this year, but got shaken out last July. The move that began with the stock blasting off from its double bottom at 28 in August pushed RDY to 40 before a little weakness showed up. We think you can buy RDY right here. BUY.”
And the stock is still recommended buy. To find out more about RDY and other top emerging markets stocks, click here.
Editor of Cabot Wealth Advisory
Elyse Andrews edits Cabot Wealth Advisory, a free email newsletter that offers independent, no-nonsense investment advice on how to build long-lasting wealth written by Cabot's analysts and editors. Every Saturday, Elyse writes the Weekend Digest, which includes her column and a summary of Cabot Wealth Advisories that readers may have missed during the week. Elyse is also a regular contributor to The Iconoclast Investor, a blog for Cabot editors and readers to share their views and interact with each other.
From Cabot Wealth Advisory, 11/2/09. Sign up for free Cabot Wealth Advisory e-newsletter
Last Friday, while the Dow was dropping 250 points, I took a look at the new highs list. I found 34 stocks, many of them too illiquid and some too stodgy, but one in particular that interests me.
It's Dr. Reddy's Laboratories (RDY), a major Indian pharmaceutical maker whose biggest market is the U.S., which accounts for 35% of revenues. After that comes Western Europe with 26%, India with 17%, Russia and Eastern Europe with 11% and others with 11%.
This is not a hot stock; it's too big and too mature to be a fast grower. But I think Dr. Reddy's focus on generic drugs, which account for 72% of revenues, will pay off big in the years ahead as the health care business pays more attention to cost control. And I think the company's established connections all over Europe and Russia will bring rewards, too. Ideally, it will get more business in China and other Asian countries, but that will be a harder sell.
"The big potential here comes from a very long launching pad. RDY peaked at 19 in April 2006, and was stopped there again in 2007 and 2008. It bottomed at 7 in the bear market, and then climbed back up to 17, where it built a tidy little base. But it blasted out of that base two weeks ago, and walked right through the old resistance level of 19, so now there's no upside limit to its potential. The buyers are in complete control. You could join them now ... or wait for a pullback."
At the time, Mike recommended buying between 18 and 21, and there have been plenty of opportunities to do that over the past month. But last Thursday the stock broke out to a new high, and then on Friday, as I was conducting my search, it ran higher still.
Technically, you could buy it here; the chart is positive. But ideally, you'll want to wait for a lower-risk entry point, particularly since the broad market is now less supportive.
President, Chief Investment Strategist, Editor of Cabot Stock of the Month
Timothy Lutts heads one of America’s most respected independent investment advisory services, publishing eight newsletters to more than 165,000 subscribers around the world. Tim leads a dedicated team of professionals who serve individual investors with high-quality investment advice based on time-tested Cabot systems. Under his leadership, Cabot has been honored numerous times by both Timer Digest and the Hulbert Financial Digest as among the top investment newsletters in the industry. Tim also edits Cabot Stock of the Month.
|Dr. Reddy's Laboratories (RDY)
7-1-27 Greenlands, Ameerpet
Hyderabad, 500016 India
91 40 2373 1946
|Index Membership: N/A |
Industry: Drug Manufacturers - Other
Full Time Employees: 13,000
12/11/10 Dr. Reddy's Laboratories (RDY): An Indian stock for the future
11/2/09 Dr. Reddy's Laboratories (RDY): Profiting from industry cost controls