Maintain 'buy' on Dr.Reddy's Lab TP Rs. 2101 - Geojit BNP Paribas Financial Services

- The TP has been rolled over to March 2014.

- Company's 3QFY13 PAT (adjusted for one-time item of Rs.20.40 crore related to fuel surcharge adjustment) was marginally lower than market estimates.

- Russia continued its growth momentum while India remained steady.

- US sales remained flat sequentially due to the absence of major launches but likely to pick up in 4QFY13. Overall, the company performance in the quarter remained steady.

- The company guided US sales of USD 800 million - 900 million in FY13 and sales achieved up to 9 months of FY13 is USD 525 million. Despite ramp up in market share for key products and launch of gPropecia 1mg with exclusivity in 4Q FY13, the company is likely to miss its guidance for FY13 due to delay in two key approvals.

- Now the company expects a much stronger performance in FY14.

- EPS estimate for the forecast period has been cut marginally to factor in higher R&D cost.

- However, the TP has been maintained as it is rolled over to March 2014.

- Delay in key ANDA approvals from the US FDA, and pricing pressure in Russia are key risks to the target price.

- Over the next few years, emerging markets are likely to drive growth ( a 50% contribution to growth while the US takes a backseat) In the emerging markets, Russia & CIS, South Africa and the GSK alliance are likely to gain scale first, as the company looking at China as an opportunity in the longer run.

- Dr. Reddy's expects that the US to remain an important market but with the pace of growth slowing due to a high base and the emphasis on complex generics (including biosimilars) where approval timelines are longer. In other words, the company's growth drivers look set to change materially in the near term.

Source : Equity Bulls

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