Buy Dr Reddys Labs; target of Rs 2056: Motilal Oswal

Motilal Oswal is bullish on Dr Reddys Labs and has recommended buy rating on the stock with a target of Rs 2056 in its July 12, 2012 research report.

“DRRD is confident about achieving its revenue target of USD2.6b for FY13, which represents a growth of 30%. The management has indicated that it has some products in its US pipeline, which will help it to bridge this gap. We expect more visibility on these product opportunities from 2QFY13. The US market will be a key contributor to the company's goal of achieving USD2.6b revenue in FY13. Further, the management is confident of achieving 10-15% CAGR in US revenue from FY14 (despite the patent cliff), led by the commercialization of its pipeline of 80 ANDAs (pending approval). Performance in this segment will be driven by expanding presence in the Russian OTC market coupled with additional growth drivers like in-licensed products, ramp-up in the biogenerics portfolio in emerging markets, and gradual ramp-up in revenue from the company's partnership arrangements in emerging markets.”

“DRRD's India formulations business faced multiple growth challenges in the last few years, mainly due to execution shortfalls. The company has since taken corrective steps and expects to grow this business at a CAGR of 15%. Traction in the US, branded formulations and PSAI (Pharmaceutical Services and Active Ingredients) businesses will drive growth over the next two years. We estimate core (Ex one-offs) EPS of INR92.6 for FY13 and INR102.4 for FY14. Our estimates exclude upsides from patent challenges / low-competition opportunities in the US (we estimate one-time PAT contribution of INR4b from such opportunities for FY13). The stock trades at 17.8x FY13E and 16.1x FY14E core earnings. Buy with a target price of INR 2056 (20x FY14E EPS) - 25% upside,” says Motilal Oswal research report. 

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