Maintain 'buy' on Dr. Reddy's Lab – TP Rs.1803 - Geojit BNP Paribas Financial Services

- Buy rating is maintained on Dr. Reddy's Lab with a target price of Rs.1803 over one year.

- Strong performance in 4QFY12 but PAT missed expectations because of a one- time adjustment.

- Stock adjustment led the miss in generic Zyprexa sales to USD2 million as against the market estimate of USD40 million and this has led to lower than expected PAT.

- Performance in key markets like India and Russia has been better than market expectations. Sales increased 16% in India and 23% in Russia.

- PAT from the core business is at Rs.365 crore, which is the strongest in the last few quarters. However, PAT from the overall business missed 10% due to the one time write –off of Rs.100 crore and low contribution from generic Geodon and Zyprexa.

- FY13 is expected to be another strong year driven by new product launches in the US market and sustained growth momentum in the Indian and Russian markets.

- The company has guided total sales of USD2.7 billion for FY13 with US sales of USD 900 million. ROCE is expected at 25%.

- Overall earnings growth for FY14 may slow down due to lower opportunities in the US market and higher base effect. Still, core earnings growth may remain strong at 10%.

- Buy call is maintained on the stock with the earlier target price of Rs.1803 over one year.

Source : Equity Bulls

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