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Research
Dr. Reddy's Lab Result Update - Margins Outperform due to Nordion Inc Other Income - Karvy
Posted On : 2013-05-16 21:32:30( TIMEZONE : IST )
(DRRD IN; BUY; Mkt Cap: US$6,278mn; CMP: Rs2,028; TP: Rs2,330; 15% Upside)
DRL's revenues rose by 25.6% YoY at Rs33.4bn as against our estimates of Rs.29.7bn. EBITDA margins improved by 180bps to 26.7% in Q4FY13 on account of Operating Income of Nordion Inc of Rs 1.63 bn. Net profit has improved by 66%YoY to Rs.5704mn as against our estimates of Rs4048mn.
Revenue Details - In Generic Segment, North America revenues have grown by 30.7% to Rs.11.4 bn as against our estimates of Rs.10.2bn. Russian market has outperformed the expectation by growing 27% YoY to Rs.4.5 bn. However, Indian generic segment has grown sluggishly at 8.7% YoY to Rs3.5 bn, whereas, PSAI segment which contributes 1/3rd of total revenues has grown at 35.9% YoY to Rs.10.2 bn In PSAI, North America, Europe and India business have outperformed.
Margins improved - EBITDA margins have improved by 180bps to 26.7% compared to 24.9% in Q4FY12 as against our estimate of 22.5% mainly due to higher other operating income of Rs. 1.63 bn, which includes US$20.5 mn from Nordion Inc. due to settlement of litigation that has been recorded in the other operating income. Dr. Reddy's R&D expenses include US$2 mn due to reimbursement of income from Nordion. Post adjustment, the Company's OPM margins stood at 23% in Q4FY13, as against our estimate of 22.5%. Gross Margins have gone down by 220bps to 50.4% in Q4FY13 on the back of Product mix, lower margins in Propecia, higher competition in US and Inventory write-back.
Outlook and Valuation: Despite marginal upgrade in Revenues, there is marginal EBDITA contraction due to lower gross margins on base business and higher R&D expenses. We marginally upgrade our EPS estimates for FY14E and maintain our FY15E EPS estimates. Niche launches, recurring opportunities and hedges at Rs. 56-59 would address the concern over margins. The stock would get re-rated on account of key opportunities and margin recovery in ensuing quarters. We upgrade our multiple to 19x from 18.5x and our price target by 2.7 % to Rs 2,330. We reiterate our "BUY" rating.
