Dr Reddy’s Laboratories, the top line was adversely affected by the absence of authorised generics sales coupled with a dip in its custom pharmaceutical division revenues in the June 2007 quarter.

However, as authorised generics sales are typically low-margin, the company was able to improve its operating margin on a y-o-y basis in the last quarter.

As a result, operating profit (excluding other income) grew merely 2.8 per cent y-o-y to Rs 259.35 crore in the last quarter, while total operational income fell 11.1 per cent to Rs 1,199 crore.

A drop in its operational income was due to a 37 per cent reduction in its generics revenues in the last quarter, coupled with a 28 per cent fall in its custom pharmaceutical division revenues. However, its operating profit margin went up 290 basis points y-o-y to 21.6 per cent in Q1 FY08.

Meanwhile, in its generics division, sales in the key US market amounted to Rs 180 crore in Q1 FY08 compared with Rs 430 crore a year earlier owing to the absence of authorised generics sales in the last quarter. Dr Reddy’s generics sales in Europe amounted to Rs 250 crore in the last quarter compared with Rs 240 crore a year earlier.

In addition, in its custom pharmaceuticals division, the company highlighted that it had to grapple with a shortfall in supplies of one of the key raw materials in its Mexican operations. To the company’s credit, it has grown its total API sales by 13 per cent y-o-y in the last quarter, helped by improved sales in Europe.

Going forward, Dr Reddy’s is understood to be planning several product launches across different product segments over the next few quarters. The stock is fairly valued at 15 times estimated FY08 earnings.