Hold Dr. Reddy's Lab; target of Rs 5325: Emkay Global Financial

Emkay Global Financial's report on Dr. Reddy's Lab

DRRD’s settlement terms for gRevlimid look better than Alvogen but lag Natco’s terms, in our view. However, with volume caps in place, the market opportunity will remain lucrative for all settled players with very limited price erosion. Due to impending litigation, the Street did not ascribe any value to gRevlimid opportunity and thus, the settlement gives the certainty of launch (subject to approval). Our detailed working (exhibit 1) suggests that gRevlimid can add a Rs333 per share NPV. With a favorable ruling in the appeals court, the odds of launching gVascepa also rise considerably. We factor in the gVascepa launch in our estimates, leading to an upgrade in FY22/23E EPS by 9%/7%. With strong near-term drivers, DRRD’s outperformance should continue.

Outlook

We raise our TP to Rs5,325, valuing the stock at 25x Sept’22E EPS (vs. 25x Jun’22E EPS earlier) and adding another Rs333 NPV. Move to OW in EAP from EW earlier.