Buy Dr Reddys Labs; target of Rs 3610: KRChoksey

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26 Aug, 2025 12:21

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KRChoksey's research report on Dr Reddys LabsDr. Reddy’s Lab Q3FY16 revenues were in-line with our estimates with a miss on PAT on account of forex loss on the company’s Venezuelan subsidiary and a higher tax rate for this quarter. Revenues grew by 3.2% YoY to INR 39.7bn. North American business posted robust growth of 18% YoY in INR terms despite lack of any meaningful ANDA approval during the quarter on account of sustained performance of injectables franchise, market share gains in key molecules such as Valganciclovir, Decitabine, Metoprolol, Fondaparinux and Azacitidne & Habitrol contribution. Indian business posted a whopping growth of 34% YoY to INR 5.8bn. Russia de-grew by 21% in INR terms with 5% constant currency growth in 9MFY16. Operating Income grew by 8% YoY to INR 7,456mn with margins at 18.8% expanding by 90bps on account of enhanced gross margins from a superior business mix. R&D as a % of sales was at 10.3% at INR 4,095mn, as the management has captured milestone payments from Merck Serono for biosimilar partnership in its R&D. On account of forex loss of INR 637mn during the quarter for its Venezuelan subsidiary resulting in finance expense of INR 62mn for the quarter as compared to INR 1bn finance income in Q3FY15 and higher tax rate, the PAT was 10% below our estimates at INR 5.8bn. EPS for the quarter stood at INR 34.We expect North American revenues to grow at 13% CAGR over FY15-FY18E on back of sustained performance in key molecules, robust injectable franchise and key launches in FY17E and FY18E to drive the business going forward. An import alert on its three plants currently under warning letter and absolute halt of sales in Venezuela are key risk to our estimates. At CMP of INR 2,960 the company is trading at 18xFY17E & 15.2xFY18E EPS. We assign a ‘BUY’ rating given recent correction in price with the revised target price of Rs. 3,610 at 22xFY17E EPS of INR 164.1For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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