MUMBAI, Nov 7: The Hyderabad-based Dr Reddy's Laboratories has valued the "Dr Reddy's" brand at Rs 201 crore. The valuation is based on the theory that super profits are fully attributable to the brand. This is perhaps for the first time that a domestic pharmaceutical company has attempted to quantify intangibles such as the monetary worth of its brand.

The "Dr Reddy's" brand value of Rs 201 crore is more than half the company's estimated sales of Rs 325 crore for 1997-98. Dr Reddy's Laboratories manufactures and sells about 27 finished-dosage forms and 20 bulk drugs.

While formulations possess individual brand names (Enam, Omez, Ciprolet etc), bulk drug and formulation sales fall under the umbrella brand, "Dr Reddy's".The company has arrived at the figure of Rs 201 crore, using a valuation model based on the theory that super profits are fully attributable to the brand and can be described as brand profits. Super profits are profits in excess of a benchmark rate of return on the total capital employed.

Such brand profits are calculated considering weighted data from the last three years, with the most recent figures carrying the maximum weight. Brand earnings have been pegged at Rs 10.18 crore. Dr Reddy's is then evaluated on a multiple parameter model to arrive at a brand multiple of 19.74. This is akin to assigning a P/E multiple to multiply equity-share earnings and arriving at a fair value. The brand-valuation exercise takes into account parameters like the industry benchmark rate of return, the brand multiple and conservative factors based on the subjective estimates of the management.

Dr Reddy's says this intangible asset is one of the several reasons why the market capitalisation of the company is considerably higher than its net worth. The company has also attempted to work out its economic value added (EVA), a popular tool for analysing corporate performance in developed economies. EVA includes the stock market's expectations in the cost of equity funds for a firm rather than merely looking at dividend outflows.

Dr Reddy's has arrived at an EVA finding of minus Rs 8.42 crore, which is an indication that the company has posted sub-par returns compared with the expectations of its shareholders in 1996-97.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.