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What should investors do with Dr Reddy's Labs after Q1 results: buy, sell or hold?

Sputnik V supply from Russia has been limited. The company will likely miss the golden period of vaccine supply shortage in India, said Credit Suisse.

July 28, 2021 / 10:54 AM IST
 
 
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Dr Reddy's Laboratories share price was down over 3 percent on July 28, a day after the company declared its Q1 results.

The pharma major reported a consolidated profit of Rs 570.8 crore for the quarter ended June 2021, a 1.5 percent drop from the year-ago period, hit by lower operating profit and income. Profit in the June 2020 quarter stood at Rs 579.3 crore.

The Hyderabad-based company's revenue from operations grew by 11.4 percent year-on-year to Rs 4,919.4 crore in Q1FY22.

At the operating level, earnings before interest, tax, depreciation and amortisation (EBITDA) fell 12.3 percent to Rs 1,019 crore and the margin declined 560 bps to 20.7 percent from the year-ago quarter as operating expenses increased 14.7 percent to Rs 1,909.2 crore in the same period.

Overall, earnings missed analyst expectations. Profit was estimated at Rs 700 crore on revenue of Rs 4,991.4 crore and operating profit was expected at Rs 1,168.5 crore with the margin at 23.4 percent for the quarter by a CNBC-TV18 analysts' poll.

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Global generics business registered a healthy 17 percent year-on-year growth at Rs 4,111.3 crore in Q1FY22, the European region reported a growth of 12 percent at Rs 399.4 crore and the Emerging Markets business grew by 14 percent to Rs 912.9 crore.

India's operations were strong, growing 69 percent year-on-year to Rs 1,060 crore North American remained tepid, rising 1 percent to Rs 1,739 crore in Q1FY22.

The stock was trading at Rs 4,691.05, down Rs 153.30, or 3.16 percent. It has touched an intraday high of Rs 4,875.85 and an intraday low of Rs 4,666.95.

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Here is what brokerages have to say about the stock and the company after Q1 earnings:

Credit Suisse | Rating: Downgrade to neutral from outperform | Target cut to Rs 4,900 from Rs 5,200

The company's Q1 took a hit, impacted by higher SG&A (Selling, general and administrative expense) cost. Sputnik V supply from Russia has been limited. The company will likely miss the golden period of vaccine supply shortage in India, the brokerage said.

It has cut FY22/FY23 EPS estimates by 14%/10% to factor in higher cost.

Morgan Stanley | Rating: Overweight | Target: Rs 5,859

New launches and operating leverage is likely to drive margin recovery soon. New health-tech initiative can create value in the medium term.

Goldman Sachs | Rating: Neutral | Target: Rs 5,110

The brokerage firm is of the view that US/API price erosion has dented margins. It has cut FY22-24 EPS estimates by 6-13%.

Jefferies | Rating: Buy | Target: Cut to Rs 5,761 from Rs 6,209

The research firm feels that revenue/EBITDA/PAT came in at 2%/21%/13% which was below estimates. North America revenue was flat with market share gains offsetting price erosion. Other factor for miss was a 5 percent QoQ drop in PSAI revenue. It has cut FY22/FY23 EPS (ex-Sputnik) estimates by 1%/7% and Sputnik EPS.

Motilal Oswal | Rating: Neutral | Target: Rs 5,200

We lower our EPS estimates by 4% each for FY22/FY23E, reflecting price erosion in the US base portfolio, the gradual accrual of commercial benefit from niche launches, and higher SG&A spend towards marketing for key brands and the buildup of DTC, Nutrition, and Digital Health & Wellness. We expect a 23% earnings CAGR over FY21–23E, led by a sales CAGR of 13% in NAM, 27% in DF, 25% in Europe, and 11% in PSAI.

We value DRRD’s base business EPS of Rs 195 at a 12M forward P/E multiple of 25x and add Rs 260 per share of NPV from the g-Revlimid opportunity. Accordingly, we arrive at target of Rs 5,200 on a 12M forward earnings basis. We maintain Neutral on a limited upside from current levels.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol advises users to check with certified experts before taking any investment decisions.
Moneycontrol News
first published: Jul 28, 2021 09:37 am

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