Sell Dr Reddys Labs; target of Rs 2110: JM Financial

JM Financial's research report on Dr Reddys Labs

4QFY18 was a weak operating quarter for Dr Reddy’s with Revenues/EBITDA/PAT being 4%/22%/13% below our estimates. Revenues declined 1% YoY to INR 35.3bn mainly driven by the decline in (i) US generics (-6% YoY; -10% QoQ) due to increasing competition in key products, and, (ii) Russia (-25% YoY; -24% QoQ) due to lower off-take by channels.

Outlook

However, reversion to mean in Russia and benefits from the ongoing cost-efficiency improvement measures moderate the extent of estimate cuts. We cut our FY19/20 EPS by 5%/4%, respectively, and arrive at a Mar’19 TP of INR 2,110 using an unchanged multiple of 18x FY20 EPS. Maintain SELL.