Accumulate Dr Reddys Labs; target of Rs 3957: KRChoksey

KRChoksey's report on Dr Reddys Laboratories (DRL)

"Dr Reddys Laboratories, 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. 3,469 DRL is trading at 22.1xFY16E & 19.3xFY17E EPS. We maintain ‘ACCUMULATE’ rating with the revised target price of Rs. 3,957 at 22xFY17E."

"DRL’s Q4FY15 revenues showed growth of 11.2% YoY to Rs. 3,870crs in line with our estimates mainly impacted by Russian market sales on account of Rouble depreciation. However, Indian business showed steady growth & North America posted modest growth which includes Habitrol sales for full quarter. Emerging markets posted strong growth on back of higher contribution from Venezuela. EBIDTA grew by 9.7% YoY to Rs.832crs & EBITDA margin stood at 21.5% contracted sequentially mainly on account of lower gross margins due to unfavorable currency impact, Habitrol consolidation & higher R&D expenses. R&D expenses were high at 13.3% of revenues due to scale up in development activities of complex generics. Company has recorded forex translation loss of Rs 84crs on certain net monetary assets in Venezuela. The company has outstanding cashflow hedges of around USD 440mn at an average rate of Rs. 60-64.5/USD and balance sheet hedges of around USD 291mn. In Russia, company has outstanding cashflow hedges of 1076mn rouble at an avg rate of Rs1.16/rouble. Reported PAT stood at Rs. 519 crs up by 8% YoY. EPS for the quarter stood at Rs 30.5", says KRChoksey research report.

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