Edelweiss bullish on Dr Reddys Laboratories has recommended buy rating on the stock with a target price of Rs 3350 in its research report dated June 28, 2018.
Edelweiss' research report on Dr Reddys Laboratories
FY18 was a year of transition for Dr. Reddy’s Laboratories (DRRD) as pricing pressure in the US and GST in India emerged as major deterrents. As such, while the top line remained flat, bottom line slumped 19%. Business generated free cash flow of INR 7.1bn in FY18 against negative free cash flow of INR 19.4bn last year, despite weak profitability. R&D expenses reduced to 13 % of sales from 14% in FY17. RoCE slipped to 7% in FY18 from 18.8% in FY16. Key highlight for the year was filing of sumatriptan nasal spray in USA and recent approval of gSuboxone (early FY19). Going ahead, management’s key priorities include: (1) launch of complex pipeline like gCopaxone and gNuvaring in US; and (2) remediate issues raised in the USFDA warning letter. Maintain ‘BUY’ with TP of INR3,350.Outlook
We believe a promising complex generics pipeline, strong earnings revival over FY18-20E and compelling valuations at 13.4x FY20E EPS render DRRD a prime re-rating candidate. We maintain ‘BUY/SP’ with TP of INR3,350.
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