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Dr Reddys Laboratories Ltd Research Report - 19th May 2016

Pharmaceutical | Published on May 19th 2016

IT

For 4QFY2016, Dr Reddy’s Laboratories (DRL) posted results much lower than our estimates. The company posted a 3.0% yoy de-growth in sales to Rs3,756cr V/s Rs4,500cr expected and V/s Rs3,870cr in 4QFY2015. The sales dip mainly happened on account of flat global generics and a 22% dip in the PSAI segment. On the operating front, the EBIT margin came in at 12.7% V/s 22.2% expected and V/s 11.4% in 4QFY2015, mainly owing to lower sales and a 15.4% yoy rise in SG&A expenditure. Thus, the Adj. net profit came in at Rs376cr V/s Rs729cr expected and V/s Rs519cr in 4QFY2015, a yoy de-growth of 27.5%. We recommend a Buy rating on the stock. Sales lower than expected: The company posted a 3.0% yoy de-growth in sales to Rs3,756cr V/s Rs4,500cr expected and V/s Rs3,870cr in 4QFY2015. The sales dip mainly happened owing to flat global generics and a 22% dip in the PSAI segment. In generics, its key market USA posted a 12% yoy growth, Europe posted an 18% yoy dip, while Emerging markets posted a dip of 31% during the quarter. On the operating front, the EBIT margin came in at 12.7% V/s 22.2% expected and V/s 11.4% in 4QFY2015, mainly owing to lower sales and a 15.4% rise in SG&A expenditure. Thus, the Adj. net profit came in at Rs376cr V/s Rs729cr expected and V/s Rs519cr in 4QFY2015, a yoy de-growth of 27.5%. However, on back of the Venezuela related write offs of Rs430cr, the reported net profit came in at Rs75cr v/s `519cr in 4QFY2015, a de-growth of 85.6% yoy. Outlook and valuation: We expect net sales to grow at a CAGR of 13.8% to Rs20,021cr and adjusted EPS to record a 12.2% CAGR to Rs173.8 over FY2016-18E. On back of valuations, we recommend a Buy rating on the stock.

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CMP 3,015
Target Price 3,476
Investment Period12 Months

Stock Info

MCAP BSE (Rs in Cr)54,407.95
MCAP NSE (Rs in Cr)54,380.62
P/E (x)46.73
EPS (Rs.)68.16
BV (Rs.)638.05
Div Yield (%)0.63
FV (Rs.)5.00
P/BV (x)4.81
EV/Sales (x)5.52
EV/EBITDA (x)27.89

Shareholding Pattern (%)

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

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