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Dr Reddy's climbs 3% even as analysts view on Q3 earnings mixed

While maintaining buy call with a price target at Rs 2,704, Japanese brokerage firm Nomura said company's operating performance was ahead of its expectations.

February 04, 2019 / 12:35 PM IST
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Dr Reddy's Laboratories shares rallied 3 percent intraday to hit a 52-week high of Rs 2,875 on February 7, though brokerage houses turned mixed in their opinion after the company reported better-than-expected earnings for the quarter ended December 2018.

The stock was quoting at Rs 2,848.60, up Rs 61.70, or 2.21 percent, on the BSE at 10:31 hours IST.

Global brokerage house CLSA has maintained outperform call on the stock and hiked price target to Rs 3,200 from Rs 2,850 after increasing its FY19-21 EPS estimates by 2-9 percent as earnings beat was driven by cost-control initiative.

Cost controls continued to deliver in earnings and the hopes of revival of US growth in FY20 is a key catalyst, the research house said, adding US sales improved 4 percent QoQ & US pricing dynamics remained stable during the quarter.

"We would monitor limited competition launches in the US to turn more positive," it said.

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While maintaining buy call with a price target at Rs 2,704, Japanese brokerage firm Nomura said company's operating performance was ahead of its expectations.

India formulation recorded 10 percent growth YoY, which was ahead of its estimates driven by new launches & improvement in base business.

Dr Reddy's Laboratories' profit in Q3 grew 45 percent YoY to Rs 485 crore on a low base and good operating income.

Revenue from operations increased 1 percent year-on-year to Rs 3,850 crore in Q3 as the growth in India, Europe and emerging markets was offset by de-growth in North America business which contributed nearly 39 percent total revenue.

The pharma major said its global generics business showed a 4 percent on-year growth at Rs 3,135 crore in Q3 driven by Europe (which grew by 1 percent), India (10 percent) and emerging markets (31 percent).

However, North America revenue at Rs 1,483.2 crore in Q3 fell 8 percent compared to year-ago period, but sequentially the same increased 4 percent aided by higher volume offtake, new launches and favourable forex offset by higher price erosion in some of the key molecules.

At operating level, EBITDA (earnings before interest, tax, depreciation and amortisation) in Q3 grew 7.4 percent to Rs 865.3 crore and margins expanded by 130 bps to 22.5 percent compared to year-ago.

Credit Suisse maintained its underperform call with a price target at Rs 2,415 and slashed FY20 EPS estimate by 6 percent to factor Nuvaring in Q2-20. "Key trigger is outcome of Suboxone litigation."

Jefferies also has underperform rating on the stock, though it raised target price to Rs 2,180 from Rs 2,100 as it said company should see a strong earnings recovery in FY20, led by Suboxone launch.
Moneycontrol News
first published: Feb 4, 2019 12:35 pm

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