Buy Dr Reddys Labs; target of Rs 3399: Angel Broking

Angel Broking`s research report on Dr Reddys Labs

“For 4QFY2014, Dr Reddy’s Laboratories (DRL) posted numbers lower than our expectations. Net sales came in at Rs3,481cr V/s our expectation of Rs3,881cr, posting a yoy growth of 4.2percent. The main contributor to growth was global generics (+21percent yoy), while the PSAI segment declined by 35percent yoy. The GPM expanded by 794bp yoy to end the period at 62.9percent. However, lower sales growth, and higher SG&A (which grew by 18.2percent) and R&D (which grew by 71.3percent yoy) expenses, led the OPM to come in flat yoy at 21.8percent V/s an expected 24.4percent. Also, the other income dipped by 80.8percent yoy. The company posted a net profit of Rs481.6cr (V/s an expected Rs825cr), down 15.7percent yoy. We maintain our Buy recommendation on the stock with a price target of Rs3,399.”

“DRL posted net sales of Rs3,481cr V/s our expectation of Rs3,881cr, posting a yoy growth of 4.2percent. The main growth came from global generics (+21percent yoy), while the PSAI segment declined by 35percent yoy. The growth in global generics was triggered by the US and India which grew by 31percent yoy and 18percent yoy respectively. Russia and CIS, on the other hand, posted a flat yoy growth. The ROW market posted gains of 48percent yoy. The GPM expanded by 794bp yoy to end the period at 62.9percent. However, a lower sales growth, and higher SG&A (which grew by 18.2percent) and R&D (which grew by 71.3percent yoy) expenses, led the OPM to come in flat yoy at 21.8percent (V/s an expected 24.4percent). Also, the other income dipped by 80.8percent yoy. The company posted a net profit of Rs481.6cr (V/s an expected Rs825cr), down 15.7percent yoy.”

“We expect net sales to grow at a CAGR of 16.7percent to Rs17,997cr and adjusted EPS to record a 15.8percent CAGR to Rs170.0 over FY2014-16. We recommend a Buy rating on the stock,” says Angel Broking research report.

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