Dr Reddys Laboratories - Motilal Oswal

DR REDDY'S LABS 3QFY11: Operating performance below est; PAT boosted by lower taxes; Settles Nexium litigation

Reported revenues (incl one-off upsides) were up 9.8% to Rs18.98b vs our estimate of Rs20.3b. Excluding one-off upsides , core sales at Rs17.7b (up 2.4%).

Revenues are lower than estimates due to lower growth in the branded formulations (8.6% growth vs est of 18%) with India formulations growing by 14.2

Reported EBITDA (incl one-offs) was up 6.4% to Rs3.04b. Core EBITDA (excl one-off EBITDA estimated at Rs520m) at Rs2.5b was down 12% YoY.

Reported PAT (incl one-offs) at Rs2.73b and Core PAT at Rs2.38b are in line with our estimate, boosted by lower taxes (effective tax rate at 5.3% vs est 15%).

Management has reiterated its FY11 RoCE guidance of 18-22% in-line with its long-term goal of RoCE of 25% by FY13 with revenues of about US$3b.

Traction in the branded formulations and US businesses, and focus on improving profitability will be the key growth drivers for DRL over next two years. Based on the lower than expected 3QFY11 core performance (excl one-offs), we have cut our core EPS estimates for FY11E and FY12E by 4% each. DRL stock trades at 24.5x FY11E, 21.8x FY12E and 18.9x FY13E core earnings. Maintain Buy with target price of Rs1,710.

Source : Equity Bulls

Keywords