Dr. Reddy's Laboratories Ltd. share price target

DRRDs operational performance has largely bottomed out in 1HFY17 and is likely to improve in quarters ahead. However, only in 2HFY18 will we see a full recovery in the US segment and at company level owing to several niche product approvals in the US, close out letters for the key facilities and better traction in Russia region. With two washout quarters behind us, FY17 numbers are likely to remain subdued and earnings growth will only be seen from FY18E on a favorable base.

XX US Sales: Despite McNeil business de-growth, sequential improvement is largely due to ramp-up in own and acquired products. Overall price erosion is lower compared to Q1FY17. Recently acquired Teva's products are under patent litigation. Management expect to launch gGleevec in Q4FY17 (site transfer already done). Validation for gCopaxone has been completed and plans to submit its DMF next month. Aloxi litigation...

ICICI Securities Ltd | Retail Equity Research Revenues declined 10% YoY to | 3586 crore (I-direct estimate: | 3328 crore) mainly due to 13% decline in US sales to | 1613 crore (I-direct estimate: | 1518 crore). The US sales decline was primarily on account of increased competition in gValcyte and injectable franchise, coupled with pricing pressure and moderation in volumes off-take. RoW sales declined 55% YoY to | 123 crore primarily on account of absence of reported sales in Venezuela...

DRLs revenues decreased by 10% YoY to Rs 35.8 bn (lower than our estimates of Rs39.6 bn) due to tepid performance across Generics (-11.5%)and PSAI(-2.3%). Gross margins decreased by 529bps YoY to 56% in Q2FY17 (marginal lower than our estimates of 56.2%) due to greater price erosion in key products. Its operating profit has tanked to Rs 6301mn during the quarter due to decline in revenues, higher SGA including remediation costs and R & D expenses. Net profit de-grew by 59.1% YoY to Rs 2.95bn (lower than our estimates of Rs 4.7 bn) .

For 1QFY2017, Dr Reddy's Laboratories (DRL) posted a poor set of numbers. It posted sales of Rs3,235cr V/s Rs3,900cr expected and V/s Rs3,758cr in 1QFY2016, a yoy de-growth of 14.0%. The company's sales will continue to be under pressure owing to the likelihood of all its major markets posting a muted growth. Lower sales led to a soft EBI..

ICICI Securities Ltd | Retail Equity Research Revenues declined 13.9% YoY to | 3235 crore (I-direct estimate: | 3912 crore) mainly due to 16.2% decline in US sales. The US sales decline was primarily on account of increased competition in gValcyte and gVidaza. RoW sales declined 52.7% YoY to | 128 crore primarily on account of zero sales in Venezuela EBITDA margins declined to 12.0% (I-direct estimate: 23.3%) against 26.6% in Q1FY16 on account of higher operational expenditure...

DRL's revenues decreased by 14.0% YoY to Rs 32.3 bn (lower than our estimates of Rs 37.9 bn) due to tepid performance across Generics and PSAI. Gross margins decreased by 486bps YoY to 56.2% in Q1FY17 (lower than our estimates of 56.6%) due to greater price erosion in key products. Its operating profit has tanked to Rs 3869 mn during the quarter due decline in revenues, higher SGA including remediation costs and R & D expenses. Net profit de-grew by 79.8% YoY to Rs 1.26 bn (lower than our estimates of Rs 4.8 bn).

Background: Dr. Reddy's is a global generic pharmaceutical company with focus on the US, Europe, Russia and India. Finished dosage and API account for a bulk of the revenues, with up to 60% of sales derived from overseas operations. With a strong research pipeline, its R&D; is focused in the areas of cancer, diabetes, cardiovascular, inflammation and bacterial infections. Dr. Reddy's offers a portfolio of products and services including APIs, custom pharmaceutical services, generics, biosimilars, differentiated formulations and NCEs. It has one of the largest ANDA & a patent challenge pipeline has strengthened presence through the launch of several...

Dr Reddy’s (DRRD) PAT at Rs 1.2bn plummeted 80% YoY following a disappointing quarter for the US business. Top-line reduced to Rs 32.3bn (down 13% YoY) on account of major price corrections in key products in the US, coupled with weak PSAI sales. EBITDA margins contracted ~1450bps YoY, led by negative operating leverage and a few one-offs. Although DRRD will report better numbers in India and EM geographies going ahead, the US business has taken a major hit in the base business, leading to weak FY17 earnings estimates (at Rs 95). Profitability is expected to recover moderately in 2HFY17 on the back of a few scheduled launches, but regulatory resolution at the oncology plant remains a key factor. HDFC Securities resume coverage with a NEUTRAL rating on the stock owing to (1) A weak FY17E outlook and (2) FY18E growth being dependent on regulatory resolution. Their TP is Rs 2,900 (20x FY18E EPS of Rs 145, assuming resolution in FY18).

Trendlyne has 24 reports on DRREDDY updated in the last year from 7 brokers with an average target of Rs 3339.2 . Brokers have a rating for DRREDDY with 1 downgrade,6 price downgrades,1 upgrade,2 price upgrades in past 6 months and 3 downgrades,8 price downgrades,2 upgrades,8 price upgrades in past 1 Year.

Below?expected sales across US, Europe, emerging markets and PSAI segment caused a 16% miss in our revenue estimates. 8 Incremental expenses such as remediation spend, NDA launching expenses in the US, higher R&D (15% of sales), and lower sales from the US (better margin) led to a negative surprise in profit   8 DRRD guides for expiry of a supply contract (with ~50% profit margin) in the US starting Q1 – this would have an annual negative PAT impact of ~US$ 25mn 8 Considering visible delay in plant clearance by the USFDA, no major product launches in the near future, and weak profit outlook, we downgrade our rating from Buy to SELL with a lower TP of Rs 2,750 – 20x FY18 (earlier Rs 3,700).we downgrade our rating from Buy to SELL with lower TP of Rs 2,750 – 20x FY18 (earlier Rs 3,700).

Trendlyne has 24 reports on DRREDDY updated in the last year from 7 brokers with an average target of Rs 3339.2 . Brokers have a rating for DRREDDY with 1 downgrade,6 price downgrades,1 upgrade,2 price upgrades in past 6 months and 3 downgrades,8 price downgrades,2 upgrades,8 price upgrades in past 1 Year.