Dr. Reddy's Laboratories Ltd. share price target

27 January 2020 The renewed strategy in the US, the enhanced focus on branded generics in emerging markets and the cost-control initiatives are promising steps that bolster DRRDs earnings prospects. We raise our EPS estimate by 7.3%/8.2%/9.2% for FY20/21/22 to factor in the better outlook in India/Russia, the higher gross margin and the scope of enhancing operating leverage. 3QFY20, driven by all business segments (except the US which grew moderately by 8% YoY to INR16b 36% of sales). Pharmaceutical Services and Active Ingredients (PSAI) segment (16% of sales) grew at 16% YoY to INR6.9b. India business (17% of sales) was up 13% YoY at INR7.6b, while Europe business (7% of sales) grew by 52% YoY. Emerging markets (21% of sales) was up 19% YoY to INR9.2b, led by CIS (+26% YoY) and Russia (+20% YoY). Gross margin expanded 20bp YoY (+260bp QoQ) to 54.1% on an improved product mix.

One-off gains lead to better than expected result Dr. Reddy's Laboratories is an Indian pharmaceutical manufacturer. The company is engaged in manufacturing and marketing of over 190...

estimates. Quarterly profit jumped more than twofold on the back of a one-time tax gain and higher licence fees from sale of brands Revenues Rs.4,812Cr [YoY: 26% Up QoQ: 25% ], Gross Margin 57.50% [Q2 FY20: 51.7%; Q2 FY19: 55%], SG&A; expenses Rs.1678 crore [YoY: 36%; QoQ: 39%], R&D; expenses Rs.366 crore [7.6% of Revenues], Profit before Tax Rs.766 crore [YoY: 33% Up QoQ: -10%],...

Revenues grew 26.1% YoY to | 4812.8 crore (I-direct estimate: | 4587.1 crore) on the back of sale of three proprietary products (| 720 crore). EBITDA margins expanded 221.4 bps to 22.1% (I-direct estimate: 26.6%) mainly due to sale of proprietary products and lower R&D; spend. Delta vis--vis I-direct estimates was mainly due to an adverse product mix. EBITDA grew 40.1% YoY to | 1063.8 crore against I-direct estimate of | 1222.0 crore. Net profit grew 113.5% YoY to | 1106.8 crore (I-direct estimate: | 790.0 crore). Delta vis--vis EBITDA mainly due to lower tax outgo led by recognition of...

Dr.Reddys Lab s (DRL) revenue, increased by 26.4 percent YoY to Rs 48bn, is higher than our estimates of Rs43.3 bn, primarily due to good growth in Domestic, Europe and Emerging market and licence fees for three proprietary products.

PSAI/EM/EU drive growth: Adjusting for one-time income of INR7.2b as license fee for two brands, sales increased 7.5% YoY to INR40.8b (our estimate: INR41.9b) in 2QFY20, led by PSAI (+18% YoY), EMs (+10% YoY) and Europe (+44% YoY), partly offset by muted growth in the US (flat YoY). For...

control on overheads with its ongoing program of rationalized assets, products and global presence. Employee and SGA costs decreased by 2% and 1% respectively, while R&D; costs increased only by 1% QoQ. Its adoption of new strategy with cost-benefit analysis of each operational activity helps to limit the reduction of adj. EBITDA margin only by 20bps QoQ to 19.2%, despite one-off inventory adjustment, adverse forex (USD/INR), price erosion in core US generis and recalls of Ranitidine. Adjusted with one-off income of...

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...