Reduce Dr. Reddy's Laboratories; target of Rs 1335 Prabhudas Lilladher

Prabhudas Lilladher recommended reduce rating on Dr. Reddy's Laboratories with a target price of Rs 1335 in its research report dated November 06, 2024.

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November 06, 2024 / 16:02 IST

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Prabhudas Lilladher's research report on Dr. Reddy's Laboratories

Dr. Reddy’s (DRRD) Q2FY25 EBITDA was largely in line with our estimate. The base business margins and US sales ex of gRevlimid and PLI incentives continued to remain weak. We have scale up base business margins from current level of 16% to 19-20% in FY27. Our FY25 and FY26E EPS broadly remain unchanged. DRRD have been investing cash flow from gRevlimid to build pipeline across peptides, biosimilars and GLP products; benefits of that may take some time. Further thin US pipeline in near term and competition in certain key products remains a key risk. At CMP, DRRD is trading at valuations of 24x P/E on FY27E and factors in recovery in base business margins.

Outlook

We maintain our ‘Reduce’ rating with TP of Rs1,335/share; valuing at 25x FY27E EPS. Any big ticket ANDA approvals and sharp recovery in base business margins are key risks to our call.

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