Hold Dr. Reddy’s Labs; target of Rs 2200: Centrum Research

Centrum Research's research report on Dr. Reddy’s Labs

We maintain Hold rating for Dr. Reddy’s Labs (DRL) with TP at Rs2,200 (earlier Rs2,000) based on 21x March’20E EPS of Rs104.6. DRL’s Q1FY19 revenues were in line with our estimates. However, EBIDTA and net profit exceeded our expectations. The drug maker reported a 12% YoY growth in revenues, 1,090bps improvement in margin to 20.6% and a 615% YoY growth in net profit. DRL is facing pricing pressure in the US generic market due to channel consolidation and stiff competition from new players. Key positive risk to our assumptions includes faster approval of ANDAs by US FDA and key negative risk includes increase in pricing pressure in the US market. We recommend a switch to Aurobindo Pharma or Pfizer.

Outlook

We maintain Hold rating for DRL with a TP of Rs2,200 based on 21x March’20E EPS of Rs104.6 and with a upside of 3.1% from CMP.