Dr. Reddy's Laboratories Ltd. share price target

Headquartered out of Hyderabad, Dr. Reddy's Lab manufactures and sells a wide range of pharmaceutical products in India and Internationally. The Company operates out of three business segments - Pharmaceutical Services & Active Ingredients, Global Generics, and Proprietary Products. Its major markets include India, USA, Russia and CIS, Germany, UK, Venezuela, S. Africa, Romania...

Maintain NEUTRAL with a TP of Rs 2,340 (18x FY20E + 10x on non-core earnings) Dr. Reddys Labs (DRRD) 1QFY19 result was better with revenue at Rs 37.2bn, up 12.2%YoY and 5.3% QoQ. The low base of 1QFY18 inflates the YoY growth whereas QoQ comparison provides a better picture of the results. EBITDA increased 37.5%QoQ to Rs 7.6bn with margin at 20.4%. This is largely due to the higher than estimated sales of gSuboxone

ICICI Securities Ltd | Retail Equity Research Revenues grew 12.1% YoY to | 3736.5 crore (I-direct estimate: | 3577 crore) on the back of 1) gSuboxone windfall, 2) lower base in the domestic formulations and 3) strong revival in Russia. US revenues grew 6.4% YoY to | 1590 crore (I-direct estimate: | 1517 crore) on the back of gSuboxone (anti-opioid addiction) launch EBITDA margins improved to 20.6% (I-direct estimate: 17.3%) from 9.7% in Q1FY18 and 17.3% in Q4FY18 mainly due to sharp reduction...

Dr. Reddy's Labs (DRRD) today received final approval from the USFDA to launch Buprenorphine and Naloxone Sublingual Film, a generic version of Suboxone, in the the US market. Although the product is covered by seven patents until 2023, DRRD has got favorable ruling from the district court for four main patents. Indivior has challenged this ruling in the higher court and the decision is still pending. DRRD is doing an at risk' launch of gSuboxone based on the comfort it has on the patent litigation. The drug is indicated for the treatment of opioid addiction. Competitive dynamics of gSuboxone: Apart from DRRD, Mylan has received...

Maintain NEUTRAL with a TP of Rs 2,130 (16x FY20E + 10x on non-core earnings). Dr. Reddys Labs (DRRD) reported muted numbers in 4QFY18. Top line remained flat YoY/down 7%QoQ at Rs 35.3bn, largely affected by lower US revenues. EBITDA declined 6%YoY to Rs 5.5bn with 15.6% margin. Sustained price erosion in the US and higher contribution of PSAI revenues were the primary reasons for subpar profitability. Reported PAT came in at Rs 3bn, down 3%YoY (in line).

ICICI Securities Ltd | Retail Equity Research Revenues declined 1.6% YoY to | 3554 crore (I-direct estimate: | 3748 crore) mainly due to 5.6% YoY decline in the US to | 1449 crore (I-direct estimate: | 1631 crore) and 20% YoY decline in Russia and CIS to | 360 crore (I-direct estimate: | 450 crore). Domestic revenues grew 7.5% YoY to | 614 crore, in line with estimates EBITDA margins contracted 49 bps YoY to 15.9% (I-direct estimate: 17.7%) mainly due to higher employee cost. EBITDA declined 4.6%...

4QFY18 was a weak operating quarter for Dr Reddy's with Revenues/EBITDA/PAT being 4%/22%/13% below our estimates. Revenues declined 1% YoY to INR 35.3bn mainly driven by the decline in (i) US generics (-6% YoY; -10% QoQ) due to increasing competition in key products, and, (ii) Russia (-25% YoY; -24% QoQ) due to lower off-take by channels. While gross margin improved 230bps YoY to 53.5% (vs. JMFe 54.1%), EBITDA margin declined 83bps YoY to 15.6% (JMFe 19.3%) due to increase in SG&A; expenses (+10% YoY), translating into EBITDA declining 6% YoY to INR 5.5bn (22% miss). PAT declined 3% YoY (10% QoQ) to INR 3.0bn (13% miss), partly benefitting from gains from sale of investments (net finance income of INR 1.0bn in 4QFY18)....

DRL reported numbers below our estimates as the revenues were lower due to sales disruption impacted in EU and lower channel offtake impacted in Russia, coupled with US pricing pressure and competitive scenario. The...

Sequential decline in gross margin is attributed to lower off-take in Russia market, lower Proprietary business income and price erosion in key products. Decrease in US business by 10% QoQ was mainly due to high contribution of Sevelamer carbonate in the previous quarter, while YoY decline is primarily due to continued high price erosion and increased channel consolidation in some of the key products. Europe business declined during the quarter by 17% YoY to INR1.7b due to price erosion and temporary supply disruption. Decrease in GM sequentially is primarily due to lower off-take in Russia market, lower Proprietary business income (received milestone payment of USD20m in 3QFY18 as against USD2.5m in 4QFY18) and price erosion in key products. We value DRRD at 18x FY20E EPS, at ~10% discount to sector average (one-year Regulatory issues in key plants Pricing pressure in base business in US Stabilization of emerging market economies/currency, mainly Russia/CIS (12% of sales).

10% QoQ improvement in US sales (led by gRenvela) was a positive, however adj. EBITDA margin at 18.2% (down 475 bps YoY/ 50 bps QoQ) was below our expectation. Management expects pricing pressure in US to continue given channel consolidation and increased competition.