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Dr Reddys Laboratories Ltd Research Report - 29th Jul 2016

Pharmaceutical | Published on Jul 29th 2016

IT

For 1QFY2017, Dr Reddy’s Laboratories (DRL) posted a poor set of numbers. It posted sales of Rs3,235cr V/s Rs3,900cr expected and V/s Rs3,758cr in 1QFY2016, a yoy de-growth of 14.0%. The company’s sales will continue to be under pressure owing to the likelihood of all its major markets posting a muted growth. Lower sales led to a soft EBIT margin of 3.4% V/s 15.6% expected and V/s 20.2% in 1QFY2016. Other income came in at ~Rs61cr V/s Rs34cr in 1QFY2016. The net profit for the quarter stood at Rs126cr V/s Rs520cr expected and V/s Rs626cr in 1QFY2016, posting a yoy de-growth of 79.8%. We maintain our Neutral rating on the stock. A subdued quarter: DRL posted a poor set of numbers for the quarter. It posted sales of Rs3,235cr V/s Rs3,900cr expected and V/s Rs3,758cr in 1QFY2016, a yoy de-growth of 14.0%. The generic business (Rs2,663.8cr) posted a yoy de-growth of 14.0% owing to USA, Europe and Emerging Markets posting a de-growth of 16%, 16% and 26% yoy respectively. The Indian market on the other hand posted a yoy growth of 10.0% yoy. The PSAI segment (Rs469.2cr) posted a de-growth of 16% yoy while proprietary products and others posted a flat yoy growth of 1.0% to Rs101.5cr. Lower sales led to a soft EBIT margin of 3.4% V/s 15.6% expected and 20.2% in 1QFY2016. Other income came in at ~Rs61cr V/s Rs34cr in 1QFY2016. The net profit for the quarter stood at Rs126cr V/s Rs520cr expected and V/s Rs626cr in 1QFY2016, posting a yoy de-growth of 79.8%. Outlook and valuation: We expect net sales to grow at a CAGR of 8.2% to Rs18,119cr and adjusted EPS to record a 6.9% CAGR to Rs157.8 over FY2016-18E. We recommend a Neutral rating on the stock given the valuations.

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CMP 2,988
Target Price
Investment Period12 Months

Stock Info

MCAP BSE (Rs in Cr)54,465.24
MCAP NSE (Rs in Cr)54,582.23
P/E (x)46.78
EPS (Rs.)68.17
BV (Rs.)638.11
Div Yield (%)0.63
FV (Rs.)5.00
P/BV (x)4.81
EV/Sales (x)5.54
EV/EBITDA (x)27.99

Shareholding Pattern (%)

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

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