Dr Reddy's Labs (BUY): Focus to remain on complex products - Ambit

Dr. Reddy's revenues in 4QFY13 increased 26% YoY owing to robust growth in the North America and Emerging Markets business (mainly on account of limited-competition products, higher volume growth and new product launches). Adjusting for one-offs during the quarter, EBITDA margins contracted to 23.1% but remained higher than our estimate of 20.9%. Adjusted PAT declined 2% YoY to Rs4.5bn, 17% ahead of our estimates. We believe the pick up in product launches in the key US geography and the management's focus on the fast-growing Emerging Markets business gives us comfort on the company's growth opportunities going forward.

Niche launches like the generic versions of Vidaza, Dacogen and Sumatriptan auto-injector (which are likely to be launched in 1HFY14) should help drive earnings CAGR of 15% over FY13-15.

Given that the 4QFY13 results were higher than our estimates, we marginally upgrade our earnings estimates and valuation. Our one-year forward TP is Rs2,240 (vs Rs2,132 earlier). The stock is currently trading at an FY14 P/E of 18.7x and EV/EBITDA of 12.2x.

Source : Equity Bulls

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