Prabhudas Lilladher is bullish on Dr Reddys Labs
and has recommended buy rating on the stock with a target of Rs 2161 in its February 15, 2013 research report.
“DRRD’s Q3FY13 result was below our estimates due to muted performance in the US and domestic formulation segment. During the quarter, EBITDA margins remained subdued due to adverse product mix and increase in R&D expenditure. However, the company is expected to continue to report strong performance, going forward, led by all-round growth.”
“DRRD’s core revenue for the quarter reported growth of 24 percent YoY to Rs28.7bn, primarily led by formulation exports to emerging markets and PSAI business led by new product launches by customers. However, the domestic formulation business and US reported muted growth of 11.6 percent and 30 percent, respectively. DRRD reported 12 percent YoY increase in core EBITDA during the quarter to Rs5.87bn, while core EBITDA margins contracted by 230bps YoY to 20.5 percent impacted by adverse product mix and increased R&D expense. Despite this, Adj. PAT reported strong growth of 33 percent to Rs3.8bn, led by lower tax rate compared to Q3FY12.”
“We expect strong 28 percent earnings CAGR over FY12-14 on the back of 16 percent revenue CAGR and benefit of operating leverage. We remain positive on the overall business prospects of the company over medium term, led by strong US generic business and growth traction in branded business. The stock is currently valued at 20.4x FY13E EPS and 17.3x FY14E EPS. The stock trades at 10-15 percent discount to its historic and peer valuation. We reiterate .BUY. with target price of Rs 2161,” says Prabhudas Lilladher research report. Institutional holding more than 40% in Indian cos
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