DSP Merrill Lynch is bullish on Dr Reddy's Laboratories and has recommended buy rating on the stock with a target of Rs 850.

DSP Merrill Lynch report on Dr Reddy's Laboratories:

Several new product drivers for US

Within US generics, apart from plain vanilla generics and potential Para IV wins/settlements, DRL expects growth to come from: (a) entry into private label OTC business - likely US$20mn revenues in 1st year and scale-up to ~US$50mn revenues over 3 years; (b) difficult to copy generics (starting FY09E) based on complexity of manufacturing process, bio-equivalence etc (eg. Propranalol LA); (c) supply to US Govt. (e.g. Finasteride) and (d) biosimiliars (longer term)

Betapharm turnaround on track; big AOK tender coming

DRL expects to carry out product switches to India for nearly 70% of Betapharm’s portfolio, several of which are likely by 2HFY08E. According to DRL, there is potential for ~10-15% gross margin increase post completion of the product transfers. Betapharm plans to participate in a major AOK tender in Sep’07 covering about €2bn prescription volume (40% of the insured population).

Balaglitazone differentiation likely on lower weight gain

Balaglitazone, DRL’s diabetes NCE (partial PPAR agonist) having recently started Phase III trials is likely to be differentiated by its body weight-neutral property apart from its glucose lowering properties. This implies lower or no weight gain compared to the benchmark product, Actos (full PPAR agonist; Takeda).

Robust outlook for India and Russia

Management remained confident of beating market growth in the India business and believes 20%+ growth momentum will likely be sustained in the Russia business.