Dr. Reddy's Laboratories Ltd. share price target

We interacted with Dr Reddys Lab management recently.

Dr. Reddy's reported a weak set of operating numbers. Consolidated revenue of `38,435 mn in Q1FY20, growth of 3% YoY and a decline of 4% QoQ. During the quarter, the company received an amount of `3457 mn (Other income) from Celgene as a settlement agreement related to Revlimid that elevated EBITDA and Net profit. Adjusted EBITDA grew by only 10% YoY to `8,789 during the quarter. Whilst EBITDA margin came in at 20%, decline of 98bps YoY. Gross profit margin for the quarter was...

Other operating income at Rs.380 crore; includes Rs.350 crore received from Celgene pursuant to an agreement entered towards settlement of any claim the Company or its affiliates may have had for damages under section 8 of the Canadian Patented Medicines (Notice of Compliance) Regulations in regard to the Company's ANDS for a generic version of...

Dr. Reddy's Lab. (DRRD) reported mixed performance in Q1FY20, with revenue at Rs3,843Cr (vs. estimate of Rs3,931Cr), below expectation on account of softness in PSAI segment (down 33%/16% on QoQ/YoY) and Proprietary product (due to divested assets).

Having overcome regulatory issues at key formulations plants, the co is rapidly ramping up US revenues with key oncology and injectables launches. Additionally, biosimilar and complex generics launches in EM and reg markets, renewed focus on India, and traction gained in EU & China will support rev CAGR of ~15% over FY19-21E. Mr Erez Israeli has now stepped up as the CEO, following a successful stint as COO with ~400bps improvement in EBITDA margin during FY19. Continued cost optimization, divestment of non-core assets, and healthy revenue growth across key geographies along with a better mix will drive ~19% PAT CAGR over FY19-21E. Considering the improving balance sheet, healthy FCF (Rs 15bn+ annually), and largely clear regulatory status, the valuations remain lucrative at 20.7/17.8x FY20/21E P/E. We maintain BUY on DRRD following a miss on our estimates driven by temporary issues. Our TP is unchanged at Rs 3,360 (20x FY21E EPS + Rs 380/sh for niche products). A visible ramp up in the US and further cost efficiencies enable us to stay confident.

US going through rough patch but promising launches ahead Despite a challenging time, US remains a key driver for the company, contributing ~42% to total revenues. The company has a strong pending pipeline comprising 104 (58 Para IV filings, 34 FTFs) and three NDAs under 505 (b)(2) route. We expect US sales to grow at a CAGR of 11% to | 7395...

Dr. Reddys Lab (DRL) revenue, increased by 3.3% YoY to Rs 38.4 bn, is lower than our estimates of Rs 41.2 bn; primarily due to good growth in Domestic, Europe and Emerging market business.

DRRD sales were in line with our estimates while adj. EBITDA and adj. PAT Change in Estimates | Target | Reco missed estimates due to significantly lower PSAI sales, one-off inventory adjustment and price erosion in key generics. Management however...

Q1 reported 18% EBITDA miss impacted by one-offs in gross margins (PSAI & inventory write-offs in US totaling US$20mn, in my view), while adj. EBITDA was in line.

Dr. Reddy's Lab. (DRRD) demonstrated mixed performance in Q4FY19, with revenue stood at Rs 4,017cr (vs. estimate of Rs 3,840cr), beat was on the back of one-time revenue realized from the sale of derma brands of Rs180cr.