Hold Dr Reddys Labs; target of Rs 1700: Emkay

Emkay Global Financial Services has recommended hold rating on Dr Reddys Labs with a target of Rs 1700, in its May 11, 2012 research report.

• Q4FY12 Results, in-line- a) Revenues at Rs2.65bn (up 32%YoY), b) EBITDA at Rs6.6bn (up 129% YoY) and c) APAT at Rs4.2bn (up 38% YoY)
• India business grew by 17% led by 23 new launches in FY12. US business grew 48% to USD175mn led by launch of Geodon & Seroquel generics
• Going forward – There are 10-15 products including para-IV’s lined-up for launch in FY13 in US which are critical for the company to achieve USD2.7bn revenue target
• Recent negative surprise in Zyprexa, Avandia, Boniva and Clarinex raises concerns about successful monetization of other key products. Maintain Hold with price target of Rs1700

"48% growth in US (contr. 33%) led by generic launches such as Geodon & Seroquel. Zyprexa contribution at just USD2mn came as a negative surprise (we had est. USD45mn). Sale for Geodon and Seroquel is approx. USD33million § 17% growth in India (contr. 15%) formulations led by volume increase in key brands and oncology portfolio § 32% growth in Russia (contr. 13%) led by strong traction in OTC portfolio § 35% growth in PSAI segment (contr. 28%) led by new customer orders.”

"We expect Dr. Reddy to report 15% base revenue growth in FY13E and 13% growth in FY14E. We expect base EBIDTA margins to move from 19.3% in FY12 to 19.5% in FY13 and FY14. Base earnings will grow by 25% CAGR over FY12-14E. Maintain Hold with a target price of Rs1750. At CMP, the stock is trading at 18x FY13E and 16x FY14E earnings,” says Emkay Global Financial Services research report.

FIIs holding more than 30% in Indian cos

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