DRL has edge over Ranbaxy

Mumbai, March 29 | Updated: Mar 30 2006, 05:30am hrs
The recent acquisitions by Dr Reddy's Labs (DRL) and Ranbaxy show that Indian companies have found a way to reach out to new markets as margins are affected by high competition in the global scenario.

The year 2005 saw generic product launches with around $10 billion in sales globally of which 60% of the business went off to the top few companies and Indian companies account for only 22% of this business. Incidentally, the global generic industry grew only 5% in 2005 against 27% in the year before. The poor growth is attributed to fewer launches in 2005.

DRL's agreement with 3I for the strategic acquisition of betapharm of Germany for a consideration of 480 million euros cheered up the markets as the market price was up by 9.38% to trade at Rs 1281 on the day of the acquisition. On the other hand, Ranbaxy was up by only 3.21% to trade at Rs 410 on the back of the Terapia deal at $ 324 million.

Analysts look at both the deals differently as Ranbaxy is not very active in branded generic drugs. DRL has sales of $488 million in generic drugs, and the same figure works out to $200 million for Ranbaxy. DRL has a market share of around 20% while Ranbaxy accounts for 9% of the total sales for Indian companies in this market.

Dr Reddys has an enterprise value in excess of Rs 8200 crore with a networth of Rs 1941 crore which is in stark contrast to the size of the acquisition. On the other hand, Ranbaxy has an enterprise value of Rs 15323 crore. DRL has a P/E of 50 times while the same figure for Ranbaxy accounts for 39 times. This is much higher than the industry P/E of 32 times. The market expects a higher growth rate from DRL as compared to Ranbaxy as the company has been able to take market shares across several molecules.