Motilal Oswal's report on Dr Reddys Laboratories
"Dr Reddy's (DRRD) sees the challenge of base effect playing out in the US for 4QFY14/FY15. For FY15, the onus will be on ramping up sales in limited competition products approved in FY14 due to lack of blockbuster launches. We model 10 percent YoY growth in the US in FY15E to USD1b. However, we expect FY16 to be a stronger as new launches accelerate."
"DRRD expects the underlying growth in Russia to remain unaffected despite the ongoing political issues. However, currency volatility may have an impact on sales from this region. It expects PSAI sales growth to remain weak in the near term and India to grow at 10-12 percent."
"Even though the near term outlook on US seems muted, we believe DRRD deserves at least sector-average valuations, given its established R&D capabilities, lean balance sheet and well-balanced geographic presence."
"DRRD has been witnessing increasing contribution from complex products which add stability to the US business. Even though the near term outlook on US seems muted, we believe the company deserves at least sector-average valuations, given its established R&D capabilities, lean balance sheet and well-balanced geographic presence. Hence, 18.9x FY15E and 16.9x FY16E are undemanding, in our view. Delay in incremental competition for key limited competition products launched in FY14 may lead to a positive surprise to our estimates. Maintain Buy with a target price of INR3,180, an upside of 19 percent," says Motilal Oswal research report.
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