Dr Reddy's to invest Rs 750 crore in two SEZs

Dr Reddy's Laboratories (DRL), the second largest drug maker in the country, would invest about Rs 750 crore ($ 150 million) in setting up two special economic zones (SEZs)- one in Visakhapatnam and another in Hyderabad.

Each SEZ would be spread over 250 acre and the land acquisition process has been completed, said managing director and chief operating officer Satish Reddy.

While the SEZ at  Visakhapatnam would be for finished dosages, the Hyderabad one would be for chemical products and intermediates. The company was seeing a growth in volumes as many drugs would go off-patent next year.

Despite the downsides in the market, the company was expecting to grow by 10 per cent during the year 2009-10.

"With Rs 7,000 crore revenues, we feel that we have reached a critical size and scale in core businesses. The approach will be to mitigate the risks,''  Reddy said while announcing the company's 2008-09 results.

DRL's business had taken a hit due to the current slowdown and company's growth rate last year stood at just 2.1 per cent while the pharma industry in India grew at 10.1 per cent.
 
"Some biotechnology companies have stopped outsourcing and instead have started to use internal resources to cope with the difficult market situations,'' Reddy said adding that the business was mired by supply issues. 

According to the managing director, the company had already exited small distribution markets and was realigning costs for a growth based on 2008-09 performance.

"We will watch the costs closely. The focus will be on  improving the supply chain, increasing the profitability from 9 per cent to 12 per cent, increasing the return on capital employed to about Rs 16 to 19 per cent from the present 14 per cent,'' he said.

The company fine tuned the supply chain model to improve the availability of drugs by decreasing the inventories. The pilots on this were successful and more distributors would be reduced.

It would take about three months or so for the changes made in the supply chain to translate into sales. The company was trying to increase its reach to rural areas, particularly in northern states. It would also launch a special arm to focus on rural marketing besides increasing the coverage by reaching out to more general physicians and consultant physicians.

During the year 2008-09, DRL suffered a net loss of Rs 977.7 crore. In Germany, it suffered an impairment loss with respect to the intangibles and goodwill to the tune of Rs 1,402.3 crore  for betapharm, its German subsidiary. Also, the company, which had its revenue forecast on a prescription-based supply model, did not get anticipated revenues as the market there was shifting to a tender-based supply model, which had also resulted in a drastic fall in the prices of the drugs.

"The drug reforms in Germany have taken us by surprise. The drug prices have come down drastically and the downward trend would continue," Reddy said.