Buy Dr Reddys Laboratories; target of Rs 3878: Angel

Angel Broking's report on Dr Reddys Laboratories (DRL)

For 3QFY2015, Dr Reddy’s Laboratories (DRL) posted marginally lower-than-expected numbers. The revenues came in at Rs 3,843cr (V/s an expected Rs 4,000cr), registering a yoy growth of 8.8%. Generic sales grew at 7.8% yoy, while the PSAI segment grew by 20.8% yoy. On the operating front, the EBIDTA came in at 23.0% V/s an expected 22.2% and V/s 27.6% in 3QFY2014, ie a yoy dip of 460bp. A higher R&D expenditure during the quarter (11.2% as a percentage of sales V/s 8.4% in 3QFY2014) adversely impacted margins. Further, the company posted an Adj PAT of Rs 575cr for the quarter V/s Rs 584cr in 3QFY2014, a yoy dip of 1.6%. We had estimated an Adj PAT of Rs 611cr for the quarter.

Revenues for the quarter came in at Rs 3,843cr (V/s an expected Rs 4,000cr), recording a yoy growth of 8.8%. Generic sales grew at 7.8% yoy, while the Pharmaceutical Services and Active Ingredients (PSAI) segment grew by 20.8% yoy. In the generic segment, the USA grew by 3.7% yoy, Europe by 4.6% yoy, India by 11.0% yoy, ROW by 82.3% yoy while Russia & CIS posted a dip of 10.0% yoy. On the operating front, the EBIDTA came in at 23.2% V/s an expected 22.2%, and V/s 27.6% in 3QFY2014, ie a yoy dip of 460bp. A higher R&D expenditure during the quarter (11.2% as a percentage of sales V/s 8.4% in 3QFY2014) adversely impacted margins. The company posted an Adj PAT of Rs 575cr for the quarter V/s Rs 584cr in 3QFY2014, a yoy dip of 1.6%. We had estimated an Adj PAT of Rs 611cr for the quarter.

Outlook and valuation: "We expect net sales to grow at a CAGR of 18.8% to Rs 18,657cr and adjusted EPS to record a 20.7% CAGR to Rs 184.7 over FY2014-16E. We recommend a Buy rating on the stock with a target price of Rs 3,878", says Angel Broking research report.

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