Buy Dr Reddy’s Laboratories; target of Rs 2700: ICICI Direct

ICICI Direct's research report on Dr Reddy’s Laboratories

Revenues, EBITDA were broadly in line while net profit was higher mainly due to lower tax rate and higher other income. Adjusted for these, net profit was also almost in line with our estimates Revenues grew 7.2% YoY to Rs 3817.5 crore (I-direct estimate: Rs 3857.7 crore) as 26.8% YoY growth in Russia & other CIS to Rs 520 crore and 63.7% YoY growth in RoW sales to Rs 229.2 crore were largely offset by muted growth in the US to Rs 1426.5 crore EBITDA margins improved 109 bps to 19.9% (I-direct estimate: 18.9%) mainly due to 158 bps improvement in gross margins, lower R&D spend and fixed cost. EBITDA grew 13.4% YoY to Rs 759.3 crore against I-direct estimate of Rs 730 crore Net profit grew 69.7% YoY to Rs 518.3 crore (I-direct estimate: Rs 361.1 crore) mainly due to lower tax rate and other income.

Outlook

Key growth drivers in the near term would be key launches in the US and clearance of Duvvada and Srikakulam API plants besides strong growth Global Generics (ex US, Europe). We arrive at our new target price of Rs 2700 based on 20x FY20E EPS of ~Rs 135.