Hold Dr Reddy's Lab; target of Rs 2000: Centrum Research

Centrum Research's research report on Dr Reddy's Lab

We maintain Hold rating for Dr. Reddy’s Labs (DRL) with TP at Rs2,000 (earlier Rs2,450) based on 21x March’20E EPS of Rs95.1. DRL’s Q4FY18 results were below our and consensus estimates. The drug maker reported a 2% YoY decline in revenues, 40bps reduction in margin to 15.9% and a 19% YoY decline in net profit. DRL is facing pricing pressure in the US generic market due to channel consolidation and stiff competition from new players. The company has received approval for its NDA ’Impoyz’ from US FDA. Key positive risk to our assumptions includes faster approval of ANDAs by US FDA and   key negative risk includes pricing pressure in the US market. We recommend a switch to Aurobindo Pharma or Pfizer.

Outlook
We have lowered our FY19E and FY20E EPS estimates by 27% and 18% respectively. We expect DRL to perform better due to strong product pipeline for the US market and strong brands in the domestic market. We maintain Hold rating for DRL with a TP of Rs2,000 based on 21x March’20E EPS of Rs95.1, and with a  upside of 1.6% from CMP. For all recommendations report, click here

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