Dr. Reddy’s Laboratories has an ambitious growth strategy; how far can they succeed?

Drugmaker Dr. Reddy’s Laboratories has a two-pronged strategy to keep chasing growth. Coming in the backdrop of a 27.3 per cent year-on-year growth in revenues to Rs 6,770 crore in Q3FY23, the pharma major has classified its short- and long-term plans into Horizon 1 and Horizon 2, respectively. It plans to chase long-term growth through M&As, while focussing on its core businesses of active pharmaceutical ingredients, generics (reverse engineered drugs similar to their branded counterparts), branded generics, biosimilars (biotherapeutic products similar in terms of quality, safety and efficacy to licensed reference biotherapeutic products) and over-the-counter drugs to grow over the short term, company officials say.

For its Horizon 2 bets, Dr. Reddy’s plans to explore new areas such as digital healthcare services, biologics (drugs made from living things), cell and gene therapy, and disease management, apart from looking for inorganic opportunities.

The company is taking a measured approach to inorganic growth due to its strength in the domestic market, which was visible in the 10 per cent YoY growth in its India business in Q3FY23. “We are creating several growth engines for the India business for both Horizon 1 and 2, which includes ramping up the internal portfolio, collaborations, innovation and inorganic opportunities,” says CEO Erez Israeli.

Dr. Reddy’s is eyeing double-digit growth in FY24 on the back of its plan to launch around 30 products in the US market. It is also investing in various businesses that may sustain long-term growth. For instance, it is building a global pipeline of biosimilars, developing new chemical entities for immune-oncology therapy, and building up a neutraceuticals (products derived from food sources that have nutritional and medicinal benefits) portfolio, along with developing vaccines and its contract development (CDMO) operations. “We are evaluating several inorganic opportunities across businesses. We believe all of these will lead to several growth opportunities, both in the short- and long-term,” says Israeli.

Analysts are also upbeat about the Dr. Reddy’s stock, considering the new launches and healthy revenues posted in the recent quarter. Dr. Reddy’s share price has grown at 17.75 per cent CAGR over the past three years. The company’s “ramp-up across geographies on the back of new launches, strong free cash flow generation to be driven by Revlimid (adult cancer-myeloma drug) and other niche launches and calibrated cost approach based on better product mix,” are positives, as per a report by ICICI Direct research.

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