Dr Reddy’s Laboratories planning mergers and acquisitions to climb up ladder

By Sumit Blogs -

Mumbai: Dr Reddy’s Laboratories said it aims to be among the top five drugmakers in India, largely driven by mergers and acquisitions (M&A) of brands, companies and in-licensing deals targeting chronic categories, along with broadening of nutraceutical and over-the-counter (OTC) portfolios.

The company did not set a deadline but said it wants to achieve the target in the “foreseeable future”. It is ranked 10 and has been steadily moving up the ranks. It was ranked 16 about five years ago.

India contributed about a fifth or ₹4,196 crore of the company’s overall sales of ₹21,439 crore in 2021-22, but domestic business has clocked 17% compound annual growth rate in the past four financial years, well above the sector average of 9-10%.

In an interview to ET, GV Prasad, chairman of Dr Reddy’s Laboratories, said the management’s focus, attention and significant capital allocation will be directed towards India. “Getting into the top five is our aspiration,” said Prasad. “On an organic curve you can’t reach there (top five). We are open for M&A but for the right price…and buttressed by organic execution. We have to pull all the levers.”

He said private equity players have pushed up prices of the assets. “These are all cycles. They come, and they go,” he said. Prasad said the company is well positioned for acquisitions, as it is debt-free with a cash surplus of ₹1,500 crore and net cash generation of ₹2,000 crore. He said the company will be targeting 25% Ebitda margin and return on capital employed, taking care of future investments.

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On the US generics business, which accounts for 35% of the company’s sales, Prasad said price erosion is a more structural part of the business due to competition and that success will depend on ability to develop products which have less competition because of tech barriers.

“The US business is always driven by price. Generics are commodity products. Demand is stable, but supply (side) changes when new entrants come in. A lot of Indian companies have gone in, which has caused commoditisation of products,” said Prasad. “The formula for the business is very simple. First to the market, day one launches, cost structure to compete, resilient and flexible supply chain and good commercial model – that’s all.”

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