Dr Reddy's Laboratories - Disappointing start to a robust year - Accumulate - Elara Capital

• Rating : Accumulate
• Target Price : INR1,382
• Upside : 9%
• CMP : INR1,272 (as on 13 May 2010)

Disappointing start to a robust year

High base, delay in key launches accentuate poor show

A delay in obtaining regulatory approval for key products shadowed strong revenues from the authorized generic launch of sumatriptan in Q4 FY09, leading to a meager1% growth in reported net sales in Q4FY10 for the company. Lack of major launches impacted the core business growth in the US as excluding sales of sumatriptan, the company achieved only an 8% growth in core generics in that country.

Court cases, delay in approvals heighten unease over US business

The citizen petition case has delayed the company's plan to launch Allegra D-24 despite the US FDA's approval since March 2010. The management plans for at-risk launch of the drug by June 2010. While the company is confident of approval for fondaparinux in FY11, the timing remains uncertain. Earlier Dr Reddy's was positive on the approval by the first half of 2010. Sales from its niche product, omeprazole OTC has also been picking up slowly than the anticipation of the company which has added three new clients till date, but expects a substantial build in traction during FY11. Launch of generic lotrel is the only positive development for the companyin Q4FY10 as it is likely to match the market share with other three competitors.

Betapharm remains disappointing, maintain Accumulate

Betapharm is continued to report disappointing sales in Germany with a 26% reduction in revenues at USD162mn. With the laying off 200 people in Betapharma and the ramping up of AOK business, the company has given a guidance of Euro75-100mn sales for FY11. However, we believe the full impact of the business restructuring would be visible from Q4FY11 onwards. Overall, the company's performance is in-line as we expected Dr Reddy's growth prospects would be hindered by sporadic court cases and delayed approvals. However, with a robust product pipeline and new launches, we remain confident that the management would be able to achieve USD3bn sales in FY13. We maintain Accumulate.

Source : Equity Bulls

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