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Sanjiv Shankaran

Recommendations: Ranbaxy: Buy Dr Reddy's: Hold Prizer: Buy

INDIAN companies with the right inputs to capitalise on opportunities in the US generics market command the best valuation in the equity market today. Ranbaxy Laboratories and Dr Reddy's Laboratories have perhaps had the best showing till date in the US market, and thereby, set the standard.

Ranbaxy Laboratories: Ranbaxy has a long-standing strategy of expanding geographically order to cushion its business from region-specific problems. Among the Indian companies, Ranbaxy was one of the earlier entrants in the US generics market. Ranbaxy operates in the US through subsidiaries, and is in the process of building a large portfolio there.

While Ranbaxy's overseas operations have grown in strength over the last three years, its Indian businesses were adversely impacted by the slowdown in the domestic market. Consequently, the company's share price declined in 2000 and early 2001.

Last year, Ranbaxy's share price saw a steady increase, in the backdrop of a marked improvement in its US operations. The US operations hold promise, and over time may be the most significant contributor to the company's profits. Therefore, Ranbaxy's earnings seem set to grow significantly over the next couple of years.

Ranbaxy now trades around Rs 912 (a bonus issue is on the cards). Though the stock has almost doubled over the last year, there is still the possibility of moderate capital appreciation over the next two years. High-priced Ranbaxy may be, but the solid foundation of its US operations suggests it is still an attractive investment.

Dr Reddy's Labs: Dr Reddy's achieved the most notable Indian success in the US generic market last year. About 21 per cent of Dr Reddy's sales in fiscal 2002 came from the sale of Fluoxetine in the US, and about half the operating profit from the same. Arguably, Dr Reddy's has the most effective R&D unit among Indian firms. The company's basic research programme has achieved a noteworthy degree of success.

Additionally, its expertise in process research helped it make a large profit in the US market. Over the last year, Dr Reddy's share price has registered a moderate increase to trade around Rs 982.

Dr Reddy's financial performance this fiscal may be lacklustre in relation to the previous year. Fluoxetine has lost the six-month monopoly it had last year and, therefore, the product's realisations may fall.

At the moment, it does not appear as if Dr Reddy's will be able to unveil another product in 2002-03 to mirror the performance of Fluoxetine. Investors may avoid fresh investment in Dr Reddy's.

For shareholders, however, the stock is worth holding on. A positive development in the company's basic research programme could trigger a sharp rise in share price. One of Dr Reddy's molecules, which is undergoing clinical trials overseas, is believed to be promising. Tangible developments can act as a catalyst for a rally. So, shareholders may consider holding on a while longer.

Pfizer: Pfizer's approach to the pharmaceuticals business is in sharp contrast to the aforementioned companies. Pfizer has a relatively restricted product basket and new product launches are limited. It is in the area of marketing products that Pfizer stands out because a highly regarded field force stays focussed on the relatively small product basket. The emphasis on a focussed approach appears to have paid of, and the returns on shareholder funds are one of the highest in the industry. Pfizer's share price is now around Rs 440. It is attractive for those looking at an investment horizon of two years or more.

The company's strategy makes for relatively stable growth, and the prospect of reasonable growth in share price in the next couple of years appear bright.

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