Morningstar | Dr. Reddy's Fiscal Fourth-Quarter Results Broadly Met Our Expectations
Dr. Reddy's fiscal fourth-quarter results mostly tracked our expectations. While the company's North American generics top line continued to improve, we don't anticipate any major changes to our fair value estimate, and we are reiterating our no-moat rating.The company's global generic revenue performance was healthy across regions during the quarter. The segment's overall revenue grew by roughly 9%, with robust strength across the board. Dr. Reddy's generic drug revenue saw roughly 27% growth in its emerging markets category, thanks to better sales volume. This growth supports our view that the company should benefit from traces of brand recognition in emerging markets over time. Meanwhile, North American generic revenue growth of roughly 3% (versus the year-ago period) was due mostly to new product launches.
Broad profitability continued to weaken during the quarter. Dr Reddy's consolidated gross margin fell by approximately 100 basis points compared with the year-ago period, primarily due to continued generic price erosion in the U.S. We still anticipate pricing pressure to remain a long-term regional headwind, and we think cost and productivity improvement measures will remain a key focus for the company.
Dr. Reddy's regulatory updates showed progress toward remediation, but the company is not completely out of the woods yet. The company is still working with the FDA to remedy violations at its API manufacturing facility in Srikakulam. Encouragingly, in February 2019, Dr. Reddy's received an establishment inspection report (EIR) for its Duvvada oncology manufacturing facility that indicates successful closure of the plant audit. We continue to think margin pressure could persist longer if manufacturing issues consistently arise.
Dr. Reddy's Laboratories is an integrated global pharmaceutical company committed to providing affordable and innovative medicines. Co. derives its revenues from the sale of finished dosage forms, active pharmaceutical ingredients and intermediates, development and manufacturing services provided to innovator pharmaceutical and biotechnology companies, and license fees from marketing authorizations for its products. Co.'s principal areas of operation are in global generics, pharmaceutical services and active ingredients, and proprietary products.
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