Hold Dr. Reddy’s Laboratories; target of Rs 6460: KR Choksey

KR Choksey's research report on Dr. Reddy’s Laboratories

In Q3FY24, Dr. Reddy’s posted a 6.6% Y-o-Y (+4.8% Q-o-Q) rise in revenue to Rs. 72,368 Mn (vs. our estimate of Rs. 71,872 Mn). The overall slower sales growth (Y-o-Y) for Q3FY24 was largely driven by improved market share for its existing products in the US, continued momentum in Europe, and contribution from new products; partially offset by price erosion in certain existing products. Including higher income from sale of non – core brands, the company posted an 11.9% Y-o-Y (-6.4% Q-o-Q) rise in adjusted PAT to Rs. 13,919 Mn and an 11.0% Y-o-Y (-6.8% Q-o-Q) rise in reported PAT to Rs. 13,809 Mn in Q3FY24 (vs. our estimate of Rs. 13,846 Mn).

Outlook

We anticipate ~7.0% and ~9.9% CAGR rise in revenue and net income over FY23-FY26E. Currently, the stock is trading at 18.3x/16.3x/17.1x based on our FY24E/FY25E/FY26E EPS estimates, respectively. We introduce FY26E EPS estimates and roll forward our valuation basis to FY26 EPS while increase our target price to INR 6,460/share (earlier Rs. 5,826), applying an unchanged ~18.0x multiple on FY26 EPS and downgrade our rating to HOLD (upside: 5.5%) from ACCUMULATE.

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