What should investors do with Dr Reddy's Labs post Q4 result: buy, sell or hold?

Consolidated revenue from operations grew by 6.7 percent year-on-year to Rs 4,728 crore in Q4FY21, supported by India and Europe businesses.

May 17, 2021 / 10:52 AM IST
 
 
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Dr Reddy's Laboratories share price fell a percent in the early trade on May 17 after the company came out with its March quarter earnings last week.

On May 14, the company reported a 27.5 percent year-on-year decline in consolidated profit at Rs 553.5 crore in the quarter ended March 2021, partly dented by weak US business and higher tax cost. Consolidated revenue from operations grew by 6.7 percent year-on-year to Rs 4,728 crore in Q4FY21 supported by India and Europe businesses.

In other news, Shilpa Medicare, via its wholly-owned subsidiary Shilpa Biologicals Private Limited (SBPL), has entered into a 3-year definitive agreement with Dr. Reddy's Laboratories Limited (DRL) for production-supply of the Sputnik V vaccine from its integrated biologics R&D-cum-manufacturing center at Dharwad, Karnataka.

Also Read - Dr Reddy's Labs Q4 profit falls 27.6% on muted US business, misses estimates

Here is what brokerages have to say about the stock and the company post the March quarter earnings announcement:

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JPMorgan | Rating: Neutral | Target: Rs 4,850

There was a margin beat but quality could have been better. The core earnings visibility is already factored into the stock's premium valuation.

Goldman Sachs | Rating: Neutral | Target: Rs 5,250

The Q4 result was in-line with analysts estimates. Meanwhile, the focus is on Sputnik V production ramp-up.

The brokerage house has revised its FY22-24 EBITDA estimate by up to 4% on an average. The litigation around key pipeline opportunities, intensity of US market pricing pressure, USFDA GMP compliance are the key risks.

Bernstein | Rating: Outperform | Target: Rs 5,626

COVID vaccine opportunity and US pipeline to support the growth. The management has guided to maintaining launch momentum in the US.

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

Morgan Stanley seeing sustained growth across most of its key markets. The tight cost control & productivity gains are improving the margin. Kuvan, Vascepa, Revlimid, Sputnik are near-to-mid-term growth drivers.

Motilal Oswal | Rating: Neutral | Target: Rs 5,670

We raise our EPS estimates for FY22/FY23E by 5%/6%, factoring in (a) the resolution of API supply issues for niche launches in the US, (b) better operating leverage in DF, and (c) an enhanced COVID portfolio. We expect a 22% earnings CAGR over FY21–23E, led by a sales CAGR of 12% in NAM, 27% in DF, and 19% in PSAI – supported by 90bp margin expansion.

Sharekhan | Rating: Buy | Target: Rs 6,500

Expected improvement in the US backed by a new product pipeline, widening of the base business, and expected improvement therein would drive growth in the US revenues. On account of a likely improvement in acquired portfolio, expected pick up in acute therapies would fuel growth of India business.

Moreover, a healthy portfolio of COVID-related products, including the COVID-19 Vaccine Sputnik V, points at strong growth potential going ahead.

Prabudas Lilladher | Rating: Accumulate | Target: Rs 5,420

We maintain P/E at 23x FY23 EPS of Rs 227 given expected launch of many key products in FY23E, while 1HFY22 could be challenging in key exports markets such as US generics. Our TP includes Rs194/share benefit from gRevlimid (using NPV method) over FY23-26E. We have not discounted earnings opportunity from Sputnik V launch since Jun FY22E as we a) expect the event to be EPS neutral and b) await better clarity on the short term opportunity

Dolat Capital | Rating: Accumulate | Target: Rs 5,458

After a series of disappointments in the last two years (such as gCopaxone and gNuvaring), we believe expectations from Dr. Reddy’s complex generic pipeline has bottomed out and upsides from launches such as gCiprodex (Aug 2020), gKuvan tab (Oct 2020), gVascepa (1HFY22), gRevlimid (FY23) & biosimilar pegfilgrastim (FY22) and filings for biosimilar rituximab (FY22) & novel biologic E7777 (1HFY22) are likely to surprise positively.

While execution in markets such as India, EMs and the strengthening of base business in the US are expected to continue from recent years, aggressive launches in the EU by replicating US dossiers are likely to drive mid-teens growth, whereas impressive cost controls to drive operating performance.

ICICI Direct | Rating: Hold | Target: Rs 5,570

We continue to draw comfort from the management’s sustained focus on cost rationalisation, especially on SG&A front and endeavour to focus on simultaneous launches across geographies and segments besides realignment of R&D spend towards - Global Generics, Biosimilars and PSAI segment. This is a welcome change from earlier stance of overemphasis on a particular market (read US).

At 09:53 hrs Dr Reddys Laboratories was quoting at Rs 5,189, down Rs 6.85, or 0.13 percent on the BSE.

The share touched a 52-week high of Rs 5,514.65 and a 52-week low of Rs 3,613.45 on 21 September, 2020 and 18 May, 2020, respectively.

Currently, it is trading 5.91 percent below its 52-week high and 43.6 percent above its 52-week low.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Moneycontrol News
first published: May 17, 2021 10:33 am

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