Motilal Oswal recommended Neutral rating on Dr Reddy’s Labs with a target price of Rs 4600 in its research report dated July 30, 2020.
Motilal Oswal 's research report on Dr Reddy’s Labs
Dr Reddy’s (DRRD) delivered strong 30% YoY growth in 1QFY21 earnings, led by a superior show in Pharmaceutical Services and Active Ingredients (PSAI) / EU and other emerging markets. - We raise our EPS estimate by 10.7%/7.2% for FY21/FY22 and continue to value DRRD on a 23x 12M forward earnings basis (in line with the three-year average) to arrive at TP of INR4,600 (from INR3,765). DRRD is well-placed to deliver a 20% earnings CAGR over FY20–22, supported by: a) limited price erosion in the base business, b) robust ANDA launches for the US segment, c) improving benefit from cost rationalization, d) a favorable demand-supply scenario in the PSAI segment, and e) synergy benefit through the addition of the Wockhardt portfolio. However, we maintain Neutral on limited upside from current levels.
Outlook
We raise our EPS estimate by 11%/7% for FY21/FY22 and revise our price target to INR4,600, valuing DRRD at 23x 12M forward earnings. We maintain Neutral on limited upside from current levels.
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