Nomura upbeat on Dr Reddy's over 1-3 years; maintains buy call

Nomura sees near-term impact on earnings for Dr. Reddy’s on the back of litigation loss, delay in resolution of US FDA’s warning letters and delays in high-value launches. However, it is positive on the company’s 1-3 year prospects and hence maintains its buy call on the stock. It has set a target price of Rs 3,594 per share and implies 32 percent potential upside.

“Given the high operating leverage, we believe the near-term earnings impact will be substantial,” the research firm said in its report.

However, increased approvals and launch of complex generic products could spring a surprise to the stock, the firm added.

“The company has an established track record of launching complex generic products. The pipeline includes high-value opportunities like gNuvaring and gCopaxone. There are likely unknown products that could be a source of positive surprise. Our analysis suggests that only 54 percent of the US pipeline is in the public domain,” it said in its report.

Apart from the resolution of the warning letter, the research firm expects number of approvals to rise as 62 percent of the pipeline is more than three years old.

On risks, it cites escalation in regulatory issues into an import alert.