Buy Dr Reddy's Laboratories; target of Rs 6000: ICICI Direct

ICICI Direct's research report on Dr Reddy's Laboratories

Q2 revenues grew 2.0% YoY to Rs 4911 crore (I-direct estimate: Rs 4564 crore) mainly due to strong growth across segments partly offset by high base effect in Q2FY20 (divestiture of certain proprietary products). US revenues grew 28.5% YoY to Rs 1833 crore on the back of rupee depreciation and new product launches. Domestic revenues grew 21.5% YoY to Rs 912 crore due to Wockhardt integration and Covid products. Europe revenues grew 35.8% YoY to Rs 375 crore due to new launches and currency tailwinds. PSAI segment posted a robust 19.7% YoY growth to Rs 851 crore. EBITDA margins expanded 144 bps YoY to 23.5% (I-direct estimate: 22.7%) due to lower other expenses partly offset by higher raw material & staff costs. Subsequently, EBITDA grew 8.7% YoY to Rs 1156 crore vs. I-direct estimate of Rs 1037 crore. PAT de-grew 30.3% YoY to Rs 772 crore (I-direct estimate: Rs 608 crore). Delta vis-à-vis EBITDA was mainly due to negative tax in Q2FY20.

Outlook

We maintain BUY and arrive at a target price of Rs 6000, which includes a base business value of ~Rs 5485 (25x FY23E EPS of Rs 219.4) + Rs 515 for NPV of gRevlimid.

For all recommendations report, click here

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Read More