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Dr Reddys Laboratories Ltd Research Report - 21st Jan 2016

Pharmaceutical | Published on Nov 16th 2015

IT

For 2QFY2016, Dr Reddys Laboratories (DRL) posted in line sales while the net profit growth exceeded our estimates. The company posted an 11.2% yoy growth in sales to Rs3,989cr V/s Rs4,000cr expected and V/s Rs3,588cr in 2QFY2015, mainly driven by global generics. On the operating front, the EBIT margin came in at 22.4% V/s 18.7% expected and V/s 17.3% in 2QFY2015, driven by the expansion in gross margins (285bps) and SG&A and R&D expenditure growing only moderaly, which is by 3.6% and 8.8% yoy, respectively. Thus, the net profit came in at Rs722cr V/s Rs631cr expected and V/s Rs574cr in 2QFY2015, a yoy growth of 25.7%. After the warning letters for its three facilities, the stock has corrected, making valuations attractive. Thus we recommend a Buy rating on the stock. Results better on operating front: The company posted an 11.2% growth in sales to Rs3989cr V/s Rs4,000cr expected and V/s Rs3,588cr in 2QFY2015, mainly driven by global generics. Global generics (Rs3,276.8cr) posted a growth of 15% yoy, while PSAI (Rs591.8cr) posted a dip of 7% yoy. In global generics, the key markets- USA, Europe, India and Emerging markets, posted a growth of 32%, 65%, 14% and -22% yoy, respectively. On the operating front, the EBIT margin came in at 22.4% V/s 18.7% expected and V/s 17.3% in 2QFY2015, driven by expansion in gross margins (285bps) and moderate growth in SG&A and R&D expenditure, which rose by 3.6% and 8.8% yoy, respectively. Thus, the net profit came in at Rs722cr V/s Rs631cr expected and V/s Rs574cr in 2QFY2015, a yoy growth of 25.7%. Outlook and valuation: We expect net sales to grow at a CAGR of 14.9% to Rs19,575cr and adjusted EPS to record a 17.2% CAGR to Rs178.8 over FY2015-17E. On back of valuations, we recommend a Buy rating on the stock.

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CMP 3,384
Target Price 3,933
Investment Period12 Months

Stock Info

MCAP BSE (Rs in Cr)54,660.74
MCAP NSE (Rs in Cr)54,857.17
P/E (x)46.95
EPS (Rs.)68.16
BV (Rs.)638.05
Div Yield (%)0.62
FV (Rs.)5.00
P/BV (x)4.83
EV/Sales (x)5.56
EV/EBITDA (x)28.13

Shareholding Pattern (%)

Foreign55.0
Promoter27.0
Public & Others9.0
Institution6.0
Corporate3.0
Grand Total100.0

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