Motilal Oswal's research report on Dr Reddy’s Labs
Dr. Reddy’s Lab (DRRD) delivered better-than-expected 2QFY23 performance, led by higher g-Revlimid sales. Considering the launch of gRevlimid in Sep’22, we had factored in USD30m sales for 2QFY23. However, DRRD delivered North America (NAM) sales of USD344m (from USD230m in 1QFY23), implying USD110-115m sales from g-Revlimid. Excluding additional sales from g-Revlimid, the sales would have been INR56b (our est: INR55.5b). Likewise, assuming 90% EBITDA margin in the g-Revlimid business and excluding the profitability of additional g-Revlimid sales, EBITDA margin would be 20.7% (our est: 21.9%) for the quarter. We maintain our EPS estimate for FY23/FY24 to factor in a) incremental sales of g-Revlimid, b) moderation in sales/profitability of Pharma service and ingredients (PSAI), Europe and CIS business, and c) ongoing price erosion in the US generics base business.
Outlook
We continue to value DRRD at 24x 12M forward PE multiple for its base business and add NPV of INR210 for gRevlimid to arrive at a price target of INR5,180. We remain positive on the ANDA pipeline for NAM and expect healthy growth prospects in India. We reiterate our BUY rating on the stock.
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