Dr.Reddy'sDr Reddy’s Laboratories, India’s second-largest drug maker by sales after Ranbaxy, maintained its revenue growth forecast at 10% for this fiscal, despite pricing pressures in Germany and a shrinking pharma market in Russia.

The NYSE-listed DRL’s performance in the next two quarters will hinge on the success of its marketing alliance with Swiss drug maker GlaxoSmithKline (GSK) in emerging markets, launch of new products and more business in the north American market.

“Our return on capital employed also stands at mid-high teens for this fiscal. Germany will continue to be a challenge this fiscal due to pricing pressures and low sales from other products. But we expect the Russian market to recover,” said Satish Reddy, managing director and chief operating officer, DRL.

The company’s net profit for the quarter ended September rose by 106% at Rs 210 crore compared with Rs 105 crore in the same period last year, surpassing street expectations. Revenues grew by 14% to top Rs 1,837 crore, against Rs 1,615 crore in the year-ago period.

Higher sales of generics in north America, Russia and India, new product launches, forex gains and a tight leash on operating expenses helped Dr Reddy’s post a double digit growth. North America and Europe accounted for more than half of DRL’s revenues, while the share of Russia and India was around 30% this quarter.

Revenues were higher this season despite the end of the 180 day-exclusivity period for migraine drug Sumatriptan in August this year. Although, the generics business was lacklustre in Europe, the company’s sales spurred from pharmaceutical services and active ingredients (PSAI) segment in this region.

The company is banking on new product launches including Omeprazole, a drug used to treat stomach ulcers, in the third quarter in the US market and a bio-similar in the Indian market by the end of this fiscal to bolster revenues. “The launch of Omeprazole and better volumes from the Indian market will generate revenues for Dr Reddy’s. But the de-growing pharma market in Russia will result in subdued growth for the company in this region,” said Sushant Dalmia, an analyst with Angel Broking.

However, stress in the company’s Germany and Russia businesses could act as a dampener in the next two quarters. “The German market contributes to less than 10% of our revenues and is less attractive from a pricing perspective. But, we do not want to exit as Germany is an important generics market. We will change our strategy and portfolio. It will take a few quarters to stabilise,” said GV Prasad, vice chairman and chief executive, DRL.

The pricing pressures in the German market began soon after DRL bought Betapharm in 2006 for 480 million euros, touted as one of India’s biggest overseas acquisitions then.

“We are close to breaking even now,” said Mr Prasad. The company’s stock moved up 6.21% to close at Rs 960 on Friday. DRL’s stocks were on a bull run, following reports that GSK was in talks with the drug maker to pick up a 5% stake. Mr Prasad, however, said he would not comment on market speculation.