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Ready for Dr. Reddy's Labs

by: Thomas Smicklas August 11, 2008 | about stocks: RDY    

Thomas Smicklas

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India can be a nasty place to invest. Government bureaucratic nightmares that make ours seem paltry in comparison. Corruption, swindling, frequently changed regulations to suit political whims: check, check and check. Buying the Indian market through an ETF or sector mutual fund was popular - until the market hit the skids.

One stock I like now (other than ICICI Bank (IBN)) is Dr. Reddy's Labs (RDY) as an ADR. This rather oddly named company is a diversified and aggressive pharmaceutical company with a presence in over one hundred countries. RDY has seen its share price have ups and downs, but I believe that now is a good time to enter the security with a target price of $34/share. Presently RDY trades at $14.76 with a market cap of $2.5b. As its 52-week high has only been slightly north of $18/share, one could question my sanity at making a bold calculation of a future price two years or less hence.

Although RDY saw earnings fall 26% at last report, it did beat most expectations. Importantly, RDY has been piling up pharma acquisitions with a lust to expand into the more profitable areas of medical treatment in developed countries and coastal China. Its operations in the Third World, while noble, are not anything to get excited about as an investor.

RDY's efforts at gaining approval of high-use generic drugs has been accelerated, most recently the FDA's approval of a generic form of Merck's Fosamex for osteoporosis. My mother at aged 98 takes this drug and feels that it has prolonged her agility without pain - along with nine raisins soaked in gin aged two weeks, as per the National Enquirer, for arthritis.

Dr. Reddy's Labs has been immune from Indian government and societal demands because it is a worldwide entity. RDY has entered as many as twenty-four different areas of pharma research and sectors which bodes well for future drug pipelines.

In short, RDY is at the cutting edge of worldwide market expansion, generic imitation and pharma research - just where one would like to invest in this crazy market.

Disclosure: The author does not presently hold a position in RDY.

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This article has 4 comments:

  •  
    Aug 11 08:25 AM
    I do not agree with your opening comments on "India can be a nasty place to invest........". In fact India has been ranked highest in corporate governance in Asia by various houses including CLSA. India witnessed a record foreign capital in Financial Year 2007. Just see the rise in Indian companies listing their ADR's in last 2-3 years. Inspite of a weak market this year a record number of Private Equity deals from foreign investors have flowed in India. Above all India is raring to go. I agree that the pace has been slow as the reforms started only after 1992. Before that India was a closed economy. India has now one of the most transparent stock exchange and securities exchange board (SEBI). We have clause 49 as a close substitute of Sarbanes Oxly Act. If we compare the transparency among Asia, Middle East and Europe, India stands in the top of the list. Indian Accounting standards will soon be converged with IFRS standards.
    Reply
  •  
    Aug 11 02:56 PM
    I'd invest in India over China any day. India has a functioning democracy, as opposed to a police state. Not an important fact (business-wise) now, but that could change in an instant. India has a higher average level of education already in place, and English is already a native tongue.
    Reply
  •  
    Aug 15 01:50 PM
    Also a pick of Martin Hutchinson in his 2-part piece on investing in BRICs...

    www.contrarianprofits....
    Reply
  •  
    Aug 19 03:41 AM
    Didn't get why author thinks this company is oddly named ? Dr.Reddy is the founder and since he wanted to name it after him, he named it Dr. Reddy's Labs, what's odd about it ? If this name seems odd, then so does Papa Murphy's Pizza or Noah's Bagels or ...

    Opening remarks are full of derogatory remarks about India, author should better have facts supporting that. Like when he says that India
    has "frequently changed regulations to match political whim", do we have any recent concrete examples or are we throwing a dart in the dark here ?
    Reply
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