Dr. Reddy's Laboratories Ltd. share price target

We upgrade our rating from SELL to NEUTRAL with a revised TP of Rs 2,400 (16x Dec19E). Dr. Reddys Laboratories (DRRD) received an EIR (Establishment Inspection Report) for its Bachupally (plant 3) formulations facility. This leaves DRRD with only the crucial Duvvada facility under significant regulatory action (Srikakulam API plant EIR expected after only 2 483 obs. in re-inspectiion). With ~50% of DRRDs top-line coming from the US business and the majority of this being sold from Bachupally, the risk of escalation to an import alert was a significant investor concern. This has now been eased.

Dr Reddys Labs (DRL) posted poor results for 2QFY2018, which were much lower than expectations. The sales came in at `3,546cr (`3,700cr expected) v/s. `3,586cr, a yoy de-growth of 1.1%. Global Generics at `2,862cr, posted a yoy de-growth of 1.0%, while PSAI at `119cr, registering a yoy de-growth of 2.0%. On operating front, the EBDITA ca..

Dr Reddys Q2 gross margin declined 270 bps YoY, largely led by weak US (-9% YoY) sales. However, EBITDA margin improved 190 bps aided by cost optimization initiatives and lower R&D; which led to 10% YoY growth in EBITDA (~19% above our estimate).

ICICI Securities Ltd | Retail Equity Research Revenues declined marginally 1% YoY to | 3546 crore (I-direct estimate: | 3619 crore). An 11% YoY decline in in the US to | 1432 crore (I-direct estimate: | 1434 crore) due to price erosion was offset by 14% growth in Russia and other CIS to | 410 crore (I-direct estimate: | 432 crore) and 37% growth in Europe to | 242 crore (Idirect estimate: | 222 crore) EBITDA margins rose 146 bps to 19% (I-direct estimate: 18%) due to...

Maintain SELL with a TP of Rs 2,220 (16x Sep19E). Dr. Reddys Labs (DRRD) delivered a mixed top-line performance in 2QFY18. Overall revenue declined 1% YoY, but witnessed growth of ~7% QoQ. Pressure in the US business continued with a 11% decline YoY. There was some relief from the performance in Europe (+34% YoY) and emerging markets (+14% YoY). The EBITDA margin came in at 18.7%, up ~200 bps YoY and ~120bps ahead of estimates.

India recovery below expectations: India business grew ~2% YoY and 36% QoQ. Normalizing for the excise duty impact, domestic growth was ~10% YoY (v/s our expectation of >15%). Key launches to drive US recovery: We expect double-digit price erosion in the US base business in FY18/19E due to the impact of further channel consolidation, and competition in key products like Dacogen, Vidaza, Toprol XL and Fondaparinux. Despite this, we expect the US business to bounce back in FY19 (US sales of USD930m in FY18E and USD1.15b in FY19E). Recent...

As per our expectations, earnings started picking up from Q2FY18 onwards. Revenues came in line with our expectations however, better margins aided earnings. If the key approvals come by expected timelines, DRL can show robust earnings in H2FY18E. A lot depends on timely approvals and pricing scenario for key assets in US. We remain optimistic as the management has indicated closer TAD dates for gCopaxone 20mg (10th Nov17), which could lead to sooner gCopaxone 40mg(Mar18). They also highlighted that TAD...

Mylan received an ANDA approval for gCopaxone 20mg/ml (branded market sales: USD600m) and 40mg/ml (branded market sales: USD2.2-2.3b). Mylan is the second generic filer to receive an approval for 20mg/ml (Sandoz/Momenta is already in the market). In 40mg/ml, Mylan is the first filer to receive an approval. Copaxone is indicated for the treatment of patients with relapsing forms of multiple sclerosis (MS). 40mg launch may happen at risk': Although the company will be launching 20mg/ml strength now, the 40mg/ml product is still under litigation. In January...

Dr Reddy's Labs posted poor results for 1QFY2018, which were much lower than expectations. The sales came in at `3,316cr (`3,636cr expected) v/s. `3,235cr, a yoy growth of 2.5%. Global Generics at `2,745.5cr, posted a yoy growth of 3.0%, while PSAI at `465.1cr, registered a yoy de-growth of 1.0%. On operating front, the EBDITA came in at ..

Downgrade to SELL with a TP of Rs 2,275 (17x Jun19E). Dr. Reddys Labs (DRRD) posted weak numbers, with the top-line growing only ~3% YoY in 1QFY18. This was led by a 3% decline in the US business and a 10% decline in domestic revenues. The EBITDA margin came in at 9.2%, sinking ~700bps QoQ, with the gross margin plummeting to 51.5% during the quarter. Incremental competition in the US continues to erode profits in the absence of new lucrative product launches. The impact of GST on the domestic business also contributed to the margin decline. PAT was Rs 591mn, down 53% YoY despite the low base.