Neutral Dr Reddy’s Labs; target of Rs 5400 : Motilal Oswal

Motilal Oswal's research report on Dr Reddy’s Labs

Dr. Reddy’s Lab (DRRD) delivered better-than-expected 2QFY24, driven by higher North America (NA)/Europe sales and improved profitability. This was, however, offset to some extent by the subdued performance in emerging markets and Pharmaceutical services (PSAI) segments. We raise our earnings estimates by 6%/4% for FY24/FY25, factoring in: a) better traction in existing products and sustained launch momentum in the NA market, and b) superior growth in the European market. We value DRRD at 22x 12M forward earnings and add NPV of INR110 related to g-Revlimid to arrive at our TP of INR5,400. After a strong 31% earnings CAGR over FY21-23, we expect earnings growth momentum to moderate to 12% CAGR over FY23-25 due to the high base on account of g-Revlimid and gradual recovery in EM/PSAI sales. Further, the current valuation adequately factors in the earnings upside. Reiterate Neutral.

Outlook

We raise our earnings estimates by 6%/4% for FY24/FY25, factoring in: a) better traction in existing products and sustained launch momentum in the NA market, and b) superior growth in the European market. We value DRRD at 22x 12M forward earnings and add NPV of INR110 related to g-Revlimid to arrive at our TP of INR5,400.

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