Dr. Reddy's Laboratories Ltd. share price target

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.

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.

Revenues of the proposed acquired business were | 594 crore in FY19 and at | 377 crore for 9MFY20 (~| 500 crore on annualised basis). The implied valuation comes to ~3.8x annualised revenue. Going by the current trail, the valuation seems in line with industry standard but considering the growth trends of key brands, it is on the higher side. Nevertheless, this acquisition is in sync with the company's overall scheme of the things of being aggressive in branded formulations, especially in India and calibration in the US. Post this acquisition, the domestic business contribution in revenues is...

We have a Neutral rating and a TP of Rs 3,440 based on 20x FY22 EPS. With improved performance across geographies we believe the multiple is well justified. US accounts for 36% of revenues and the key products - gNuvaring and gCopaxone account for ~20% of our FY22 estimates. Despite factoring in these launches along with sustenance of good performance in non US markets and margin expansion as per company guidance, upside appears limited from current market price. Dr. Reddys announced acquisition of select brands of Wockhardt in India and other markets for Rs 18.5bn, which is ~3.7x FY20e sales (Rs 5bn annualised) and ~15x FY20e EV/EBIDTA. The deal adds scale (~17% of India revenues) and deepens Dr Reddys presence in the acute segment. The key 5 brands account for ~50%+ of the acquired portfolio. We expect Dr. Reddys to revive the growth (the acquired portfolio declined 15% yoy due to issues at Wockhardt) with improved serviceability of the products and increased sales & promotion. While we need to analyse the product portfolio in detail, our preliminary analysis suggests that the deal should be 1-2% EPS accretive in FY22. Maintain Neutral. TP of Rs 3,440/sh.

EBITDA increased 24.1% YoY, as EBITDA margin improved 200bps YoY to 23.5%. However, company reported a net loss of Rs. 538cr, impacted by impairment losses worth Rs. 1,320cr, arising from price erosion of...

Strong Revenue Growth Boost Operational Performance: Dr. Reddys Lab s (DRL) revenue, increased by 13.9% YoY to Rs. 43.8 Bn.

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 includes NCE research, biologics business and differentiated formulations conducted in the US. Under this the...

US going through rough patch but promising launches ahead Despite challenging years, the US remains a key driver for the company, contributing ~42% to total revenues. The company has a strong pending pipeline comprising 99 ANDAs (53 Para IV filings, 32 FTFs) and two NDAs under 505 (b) (2) route. We expect US sales to grow at a CAGR of ~9% to...