Accumulate Dr Reddys Labs; target Rs 3722: KRChoksey

KRChoksey's report on Dr Reddys Laboratories

"DRL’s Q3FY15 revenues showed growth of 8.8% YoY to Rs. 3,843crs above our estimates driven by higher than expected growth in ROW, Europe and lower than expected degrowth in Russia/CIS business. North America business showed strong growth sequentially. EBIDTA degrew by 3% YoY to Rs.946crs & EBITDA margin stood at 24.6% contracted by 300bps YoY mainly on account of lower gross margins due to unfavourable currency impact, higher R&D & operating expenses. R&D expenses were high at 11.2% of revenues due to scale up in development activities of complex generics like topicals, patches, injectables, biosimilar’s early phase trials & late phase trials in prop products. The company has outstanding cashflow hedges of around USD 591mn at an average rate of Rs. 59-62/USD and balance sheet hedges of around USD 411mn. In Russia, company has outstanding cashflow hedges of 945mn rouble at an avg rate of Rs1.5/rouble. Reported PAT stood at Rs. 575 crs down by 7% YoY. EPS for the quarter stood at Rs 33.7."

Valuation: "Cumulatively 68 ANDAs are pending out of which 43 are Para IVs & 13 FTFs. Company has strong focus on niche launches & building its pipeline in injectables, biosimilars & derma space. Also, strong domestic business will help the company to drive growth in future. At CMP of Rs. 3,362 DRL is trading at 21.3xFY16E & 19.0xFY17E EPS. We maintain ‘ACCUMULATE’ rating with the revised target price of Rs 3,722 at 21xFY17E (earlier Rs. 3,485)", says KRChoksey research report.

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