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Research
Dr. Reddys Labs - Good overall growth - Centrum
Posted On : 2012-07-23 20:37:42( TIMEZONE : IST )
Q1FY13 results of Dr. Reddy's Labs (DRL) were in line with our expectations. DRL reported 28%YoY growth in revenues, 130bps improvement in EBIT margin and 28%YoY growth in net profit. The growth was driven by global generic business (75% of revenues), which grew by 32%YoY. The company is likely to benefit from the $170bn (Rs9,350bn) patent expiry opportunity till 2015. DRL has a pipeline of 73 ANDAs pending approval, of which 36 are Para IV and 6 FTF opportunities. The company is also likely to benefit from cumulative 550 DMF filings. We have a Buy rating on the scrip with target price of Rs2087 (based on 23x FY14E EPS of base EPS of Rs90.2+FTF EPS Rs12.4) with an upside of 26%.
- New Product launches in the US: DRL has benefited from the launch of the following new products in the US in Q1FY13: clopidogrel, lansoprazole OTC, ziprasidone and quetiapine. DRL's 29 prescription products feature among top 3 in the US generic market.
- Sequential decline in US revenues: DRL's US business has witnessed $16mn sequential fall in revenues from $176mn in Q4FY12 to $159mn due to stiff competition and price erosion of existing products. The management is optimistic of improved revenues from the new product launches.
Strong growth in global generics: DRL's global generic business (75% of revenues) grew by 32%YoY from Rs14.4bn to Rs19.1bn. The major growth came from N. America 38%, Russia & CIS 38% and other developing markets 66%.
- Revival of domestic business: DRL's domestic business (14% of revenues) revived and has reported 19%YoY growth against the industry growth of ~15%. The growth was driven by volume increase, launch of 10 new brands and 15% growth in biosimilars.
- Moderate growth in PSAI segment: DRL's PSAI business (22% of revenues) grew by 14%YoY from Rs4.8bn to Rs5.5bn. The major growth was derived from: N. America 26% and Europe 32%. However, the revenues in India declined by 6% and in other developing markets by 1%.
- Valuations: We expect DRL to benefit from the strong global generic business in US, Russia & CIS and other emerging markets. The company is likely to benefit from the pipeline of 36 Para IV and 6 FTF opportunities in the US. At the CMP of Rs1655, the stock trades at 18.6x FY13E EPS of Rs89.1 and 16.1x FY14E EPS of Rs102.7. We have a Buy rating on the scrip with target price of Rs2,087 (based on 23x FY14E base EPS of Rs90.2+FTF EPS of Rs12.4) with an upside of 26% over the next 12 months.
