Hold Dr. Reddy’s Laboratories; target of Rs 5100: Sharekhan

Sharekhan's research report on Dr. Reddy’s Laboratories

For Q4FY23, Dr. Reddy’s Laboratories’ (DRL’s) profitability was augmented by proceeds from divestment of a few non-core brands amounting to Rs. 494.1 crore; this was included in reported revenue. Normalized net income rose ~27.9% y-o-y to ~ Rs. 550 crore, excluding brand divestment-related income, while reported net profits increased ~ 889.8% y-o-y to Rs. 960.1 crore in Q4FY23. Core EBITDA margins excluding other non-operating income and unusual gains and impairment costs fell by ~ 165 bps y-o-y to ~ 18.8% in Q4FY23. Reported EBITDA margins rose ~ 156 bps y-o-y to 25.1%.

Outlook

Stock trades at ~ 15.3x/14.3x its FY2024E/25E EPS estimates. We downgrade it to Hold from Buy with a revised PT of Rs. 5,100, using lower multiples than before to factor in uncertainty on impact of loss of exclusivity for gRevlimid’s 2.5 and 20.0 mg strengths on the profitability, going forward.

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