Buy Dr Reddys Labs; target of Rs 2038: PLilladher

Prabhudas Lilladher is bullish on Dr Reddys Labs and has recommended buy rating on the stock with a target of Rs 2038 in its October 30, 2012 research reports.

“DRRD’s Q2FY13 result was significantly above our estimates led by strong growth in US generics and PSAI business. The company reported strong improvement in profitability led by benefit of operating leverage. The company is expected to continue to report strong performance, going forward, led by all-round growth. At the current price, the stock trades at 17.3x FY13E and 15.1x FY14E earnings. We maintain ‘BUY’ with target price of Rs2,038.”

“DRRD’s revenue for the quarter reported growth of 27% YoY to Rs28.8bn, primarily led by US business on the back of new launches and PSAI business led by new product launches by customers. However, the domestic formulation business reported muted growth of 12.1% to Rs3.9bn, while Russia and CIS reported growth of 13.6% due to delay in onset of winter in Russia. DRRD reported robust 44% YoY increase in EBITDA during the quarter to Rs6.9bn while EBITDA margins expanded by 280bps YoY to 24% led by benefit of operating leverage. PAT reported strong growth of 32% to Rs4.1bn led by operational performance but impacted by impairment charge related to intangible assets and goodwill.”

“We expect strong 31% earnings CAGR over FY12-14 on the back of 18% revenue CAGR and benefit of operating leverage. Further, we believe that the company is likely to report decent growth in revenue and earnings in FY14 despite a high base of FY13. We remain positive on overall business prospects of the company over medium term led by strong US generic business and growth traction in branded business. The stock is currently valued at 17.3x FY13E EPS and 15.1x FY14E EPS. The stock trades at 10-15% discount to its historic and peer valuation. Reiterate ‘BUY’ with target price of Rs 2038,” says Prabhudas Lilladher research report.  

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