Dr Reddy’s Labs In growth mode; Hold:: Anand Rathi

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Dr Reddy’s Labs
In growth mode; maintain Hold



 In line Q2FY11 results. Dr Reddy’s Labs saw muted growth in
Q2FY11 owing to high base and decline in the pharma services &
active ingredients (PSAI) segment. Revenue grew 1.8% yoy and
adjusted PAT grew 8% yoy. EBITDA margin marginally
contracted 50bps due to increase in R&D expenses.
 Global Generics fuel growth. The global generics segment grew
7.6% yoy driven by strong growth of 25.4% in India and 17.2% in
Russia and CIS. US business grew 3.1% yoy and 13% qoq led by
launch of limited competition products, Tacrolimus and Lotrel.
 PSAI remains under pressure. The PSAI segment witnessed a
14.1% yoy decline due to decrease in business for pharma services.
However, the segment is expected to bounce back in H2FY11 led
by launch of key APIs and recovery in the pharma services
business.
 Outlook. We expect H2FY11 to be better than H1FY11 on the
back of recovery in the PSAI segment, incremental sales from
recently launched Lansoprazole (Prevacid), continuous product
launches in the US and strong growth in domestic formulations.
 Valuation. At the current market price, the stock trades at 24.7x
FY11e and 20.5x FY12e earnings. We maintain our target price of
`1,636 and Hold rating on the stock.