Accumulate Dr. Reddy's Laboratories; target of Rs 4326: Prabhudas Lilladher

Prabhudas Lilladher's research report on Dr. Reddy's Laboratories

We continue to believe that DRRD is one of the best play in large-cap pharma space a) due to its control on overhead expenses, b) focus on domestic business, c) injectable pipeline for US and EU, d) net cash on books and e) resolution for all major FDA issues. Over FY21-22E, DRRD will likely see change is business mix with high margin domestic formulation (17% of revenue FY20) contributing more to the revenue. DRRD had already recognized (even earlier than its peers) about challenging environment in the US market and accordingly reduced capital allocation.

Outlook

We expect normalized growth in India formulations however EU and EMs to be major growth drivers to refill the lower growth in US-Gx and Russia for 1HFY21E. We change our earnings estimate marginally and continue to assign 24x PE on FY22E and arrive at new TP Rs4326(Rs4030). We maintain 'Accumulate' rating.