Accumulate Dr. Reddy's Laboratories; target of Rs 5648: Prabhudas Lilladher

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

We incorporate potential benefits from new launches over FY21-23E and upgrade our earnings estimate by 5%/6%/26%.We believe 1) gRevlimid could add value of Rs 262/share (using NPV method) for benefits over FY23-26E, 2) DRRD could be the fourth player in gCopaxone with expected launch in FY22E and could contribute EPS of Rs8.20 in FY23E 3) gNuvaring also expected to be launch in FY22E with expected EPS contribution of Rs7.70 in FY23E and, 4) gVascepa could be a near-term opportunity after receiving favorable outcome from the court with expected EPS contribution of Rs4.5/1.60/0.50 in FY21/22/23E. We incorporate benefits from new launches and roll forward our base year of valuation to FY23E (from FY22E) though maintained our assigned PE 24x, given its sustainability of improved earnings visibility led by new host of launches.

Outlook

Our new TP is Rs5,648 (earlier Rs4,326) with gRevlimid benefit contributing Rs262/share (assigning 1x(PE) to discounted cash flow of gRevlimid benefit over FY23E-26E). We also change our rating to Accumulate (earlier Hold).