Technology

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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