Dr. Reddy's Laboratories Ltd. share price target

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.

ICICI Securities Ltd | Retail Equity Research Revenues grew 3% YoY to | 3834 crore, above I-direct estimate of | 3574 crore. US sales declined 3% YoY to | 1607 crore (I-direct estimate: | 1434 crore) but grew 12% sequentially mainly due to gRenvela (nephrology) sales. India business grew 3% to | 613 crore (I-direct estimate: | 654 crore) EBITDA margins declined 254 bps YoY to 20.7% but came in above Idirect estimate of 18% mainly due to receiving milestone payment for an out licenced proprietary product of ~| 130 crore...

Major Dr Reddy's Laboratories reported a 28.86 per cent YoY drop in net profit at Rs 334 crore for the December quarter. The company said the numbers were impacted by one-time charge of Rs 93 crore due to deferred tax on assets and liabilities of the US entity. The company had reported a net profit of Rs 470.01 crore in the corresponding quarter of last year. Revenue for the quarter came in at Rs 3806 crore, which was up 3 per. During the quarter, the...

Revenues buoyed by gSevelamar, margins by milestone payment: Dr. Reddys Labs (DRL) revenue increased by 2.7% YoY to Rs 38.1 bn in line with our estimates of Rs 38.2 bn) due to improved contribution from US business in the Global generics business.

Maintain NEUTRAL with a TP of Rs 2,400 (16x Dec19E). Dr. Reddys Labs (DRRD) 3QFY18 was skewed by one-offs. While the top-line growth of ~3% YoY/~7% QoQ was optically positive, it was driven by a Rs 1.3bn milestone payment as a part of DRRDs out-licensing agreement with Encore Dermatology. Adjusted for this, the top-line was flat YoY and showed a slight sequential improvement (~4%). The EBITDA margin at 20.2% was also boosted by the milestone amount.

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..