Buy Dr Reddy’s Laboratories; target of Rs 5525: ICICI Direct

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

Q3 revenues grew 12.4% YoY to Rs 4942 crore (I-direct estimate: Rs 5014 crore). Domestic revenues grew 25.6% YoY to Rs 959 crore due to Wockhardt integration and new product launches. Europe revenues grew 33.9% YoY to Rs 414 crore due to new launches. US revenues grew 8.7% YoY to Rs 1739 crore on the back of new product launches, favourable forex rate partly offset by price erosion. Adjusting for impairment charge of Rs 597.2 crore in Q3FY21, Rs 1320 crore in Q3FY20, EBITDA margins were down 46 bps YoY at 23.0% (I-direct estimate: 23.4%) due to lower gross margins amid price erosion, higher freight charges. Hence, EBITDA grew 10.2% YoY to Rs 1136 crore vs. I-direct estimate of Rs 1172 crore. Adjusted PAT grew 7.2% YoY to Rs 685 crore.

Outlook

We maintain BUY and arrive at a target price of Rs 5525 (vs. Rs 5770 earlier), which includes a base business value of ~Rs 5312 (25x FY23E EPS of Rs 212.5) + Rs 213 for NPV of gRevlimid.