ICICI Securitie's research report on Dr Reddy’s Laboratories
US revenue surged 18% QoQ to USD 463mn (I-Sec: USD 404mn) led by better volumes for existing products. In Q1, it launched three new products and filed one product with the USFDA. DRL’s biosimilar denosumab (collaborated with Alvotech) in FY26 and abatacept (in-licensed from Coya Therapeutics) in FY27. We expect US sales to grow at a CAGR of 7% over FY24–26E. India biz grew a robust 15.4% YoY to INR 13.3bn. Excluding vaccine sales, India revenue grew in mid-single-digit. The JV with Nestle India, to launch consumer nutritional brands in India, is expected to become operational in Aug’24. We expect the India business to grow at a CAGR of 15% over FY24–26E. EU grew 4% YoY to INR 5.3bn, driven by new launches. Russia sales declined 1.8% YoY due to unfavorable currency movement and CIS was down 5% YoY at INR 1.9bn due to dip in volumes. RoW business was up 13.3% YoY (-8.4% QoQ) at INR 4.5bn. PSAI revenue surged 14.1% YoY (-6.8% QoQ) to INR 7.7bn. DRL has filed 11 DMF globally in Q1FY25.
Outlook
Higher gRevlimid sales, in our view, formed the premise for Dr. Reddy’s Laboratories’ (DRL) Q1FY25 beat. US sales soared 20.3% YoY to USD 462mn riding on market share gains in existing products. Gross margins in the global generics segment expanded 80bps YoY (270bps QoQ) to 64.7%. We believe this surge was largely fuelled by market share improvement in gRevlimid (sales pegged at USD 140mn in Q1). Integration of Sanofi's vaccine portfolio boosted growth in India (15.4%) while the base business grew in midsingle-digit. Management envisages the base portfolio's double-digit growth continuing in FY25 and DRL further benefitting from a consolidation in Sanofi's vaccine portfolio and launch of the Nutraceutical-Nestle JV. While revenue traction may sustain in the near term, rising competition in key products in US, soaring R&D/marketing costs may restrain margins. We lower our rating to REDUCE, raise TP to INR 6,350 valuing the base business at 22x FY26E core EPS of INR 263 and INR 550 in NPV for gRevlimid.
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