Neutral Dr Reddy’s Labs; target of Rs 5540: Motilal Oswal

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

Dr. Reddy’s Labs (DRRD) delivered a marginally better-than-expected performance for the quarter, led by healthy traction in the North America (NA) and Pharmaceutical Services & Active Ingredients (PSAI) segments. The India business has been witnessing moderation in YoY growth for three quarters now. DRRD continues to invest on its product pipeline, and marketing initiatives across key markets. The benefits are expected from FY25 onwards. We raise our earnings estimates by 7%/5%/4% for FY24/FY25/FY26 factoring in: 1) market share expansion in key products, 2) new launches, and 3) better operating leverage. We value DRRD on an SOTP basis (22x 12M forward P/E for the base business and adding NPV of INR90 for g-Revlimid) to arrive at our TP of INR5,540. Even after raising our earnings estimates, we expect a modest 3% earnings CAGR over FY24-26. Further, the product-specific concentration of earnings remains elevated for DRRD. Reiterate Neutral.

Outlook

We value DRRD on an SOTP basis (22x 12M forward P/E for the base business and adding NPV of INR90 for g-Revlimid) to arrive at our TP of INR5,540.