Dr. Reddy's Laboratories Ltd. share price target

Dr Reddy's Labs spurts after Q4 PAT jumps 76% to 764 cr, above estimates On a consolidated basis, the drug major recorded net profit of Rs 781.10crore in Q4 March 2020 compared with net profit of Rs 455.40 crore in Q4 March 2019. Consolidated revenues rose...

Dr Reddy's Laboratories has been catering to the needs of the pharmaceutical sector for over two decades. Active Pharmaceutical Ingredients (API) are their core strength, having a wide range of portfolio. The company also manufactures generic medicines with business spread across India, Russia, US and Germany as well as Proprietary Products which inlcudes NCE research, biologics business and differentiated formulations conducted in the US. Under this the...

Strong Results on Inventory Stocking:Revenues for the quarter increased by 10% to Rs 44.3 bn due to strong performance in US and Europe.

We continue to believe that DRRD is one of the best play in large-cap pharma space a) due to its control on overhead expenses, b) focus on domestic business, c) injectable pipeline for US and EU, d) net cash on books and e) resolution for all major FDA issues. Over FY21-22E, DRRD will likely see change is business mix with high margin domestic formulation (17% of...

Revenues grew 10.4% YoY to | 4448.9 crore, mainly due to strong growth in the US and Europe. Domestic revenues grew 5.1% YoY to | 683.9 crore. US revenues grew 20.8% YoY to | 1807.2 crore. Despite a dent in GM, EBITDA margins expanded 101 bps to 21.3% due to lower employee and other expenses. EBITDA grew 15.9% YoY to | 949.2 crore. Adjusted net profit grew 71.5% YoY to | 781.1 crore. Delta vis--vis EBITDA was mainly...

Q4 EBITDA of Rs 9.4bn (8% QoQ) was a miss despite a strong beat in the US and Europe, cost control, and net forex benefits.

We raise our EPS estimate by 2%/5% for FY21/FY22 to factor a healthy ANDA pipeline for the US market and a growing reach in the Europe markets. We further raise the PE multiple to 22x (from 21x earlier) to factor the resolution of compliance issues at all sites of DRRD. Accordingly, we revise our price target to INR3,775 (from INR3,490 earlier). led by all businesses, except Pharma Services and Active Ingredients (PSAI). The US business (40% of sales) was up 21% YoY to INR18.1b (USD240m). The Europe business (8% of sales) increased 80% YoY. The India business (15% of sales) was up 5% YoY to INR6.8b. Emerging Markets (18% of sales) expanded 15% YoY to INR8b, led by strong growth in the CIS segment. The PSAI segment (16% of sales) grew at a moderate rate of 6% YoY to INR7.2b.

Dr Reddy's Labs (DRRD) announced that it has received an EIR (establishment inspection report) from the USFDA for its Srikakulam (CTO-VI) API facility.

On the business front, despite the nationwide lockdown, domestic growth is expected to remain more or less stable. Exports growth, barring for one or two months due to congestion in all major ports globally, is also expected to remain strong due to 1) currency benefit, 2) slowdown in competition due to delay in new approvals that will be beneficial for existing players and 3) expected demand continuum across the world despite Covid-19. Some windfall is also expected in some critical productsa case in point is Hydroxychloroquine, a malaria drug that is likely to be repurposed as a prophylaxis for Covid-19 treatment in some cases....

The pharma sector is up ~1% YTD and has outperformed the Nifty Index by 28%. We prefer stocks with high India exposure as it offers greater earnings visibility, supported by reasonable valuations. Reiterate Buy on Cipla. Downgrade Dr. Reddy's to Reduce. Our positive stance on Indian pharma is premised on sectors relative resilience to Covid disruption, favorable currency tailwinds and stable outlook for India and US business. India growth has picked up (~10% growth for IPM as of MAT Mar20) and we forecast 11% growth for covered companies over the next two years. US pricing environment continues to remain benign and the regulatory challenges are well understood.