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Dr. Reddy's Laboratories - Marker Performer - Karvy Stock Broking
Posted On : 2010-10-29 20:40:02( TIMEZONE : IST )
Revenues marginally lower, margins in-line
- India and Russia business outperform expectations: Dr.Reddy's Laboratories (DRL) Q2FY11 revenues increased 1.8% to Rs.18.7 bn broadly in-line with our estimates of Rs.19.1 bn during Q2FY11. US business revenues were reported at Rs.4416 mn lower than our estimates of Rs.4915.5 mn owing to lower than anticipated traction in limited competition opportunities. India and Russia business reported strong growth owing to new product launches (India) and volume growth in its key products (Russia). Revenues in the Global generics business were in-line with our estimates while PSAI business were lower on account of price erosion, no new launches and lower offtake in CCS business..
- Branded generics, US opportunities lead to higher gross margins: DRL's gross margins were benefited by limited competition opportunities such as Lotrel (CVS) and Tacrolimus (Immunosuppressant) and strong performance in India, Russia and Common Wealth of Independent State (CIS). OPM were reported at 17.3% for Q2FY11 in-line with our estimates of 17.4% for Q2FY11.Net profit was reported at Rs.2868 mn (our estimates Rs.2767 mn)
- Rate the stock as Market Performer: We have reduced our revenue estimates for FY 2011E by 6.1 % to Rs 78014 mn and by 3 % to Rs 87531 mn in FY 2012E due to lower traction in Tacrolimus, Lotrel, delay in launch of Arixtra (anti-coagulant), degrowth in Betapharm (German subsidiary) and in the Pharmaceutical Services and Active Ingredients (PSAI) basket. We have included Allegra D12 (anti-allergy) in our estimates in FY11E (Jan 11) launch. We downgrade our EPS estimates by 10 % in FY 2011E to Rs 66.6 and by 6.7 % in FY 2012E to Rs 80.4. We value our core EPS of Rs 80.4 at Rs 20x and arrive at a price of Rs 1608 and value Zyprexa 20 mg (CNS) (para IV FTF) EPS upside of Rs 18.7 at 5x and arrive at a price of Rs 94. We downgrade our price target by 4.1 % to Rs1,702 and our rating to Market Performer.
