Macquarie Research: Buy Dr. Reddy's Laboratories

Dr. Reddy's Laboratories
(DRRD IN, Rs1,476, Outperform, TP: Rs1,500)
Key takeaways
􀂃 US business top priority: DRRD has set a target of becoming a leader among Tier II generic
players in the US by FY13 by leveraging its robust pipeline, which has visibility into niche
opportunistic launches each year for the next five years. The launch pipeline in the US looks
robust for the remainder of the year, with roughly 10 products planned. For Lotrel, DRRD has
~15% share of the new prescriptions (NRx); for Prograf, it has ~20% share of the NRx. Upcoming
near term opportunities are Fondaparinux, Accolate and Prevacid.
􀂃 Powering India: DRRD is looking to expand its sales force (current strength ~3,200). Currently
India contributes ~20% of the total revenue. DRRD expects to grow in high-teens over the medium
term. Focus is on rural market.
􀂃 Western Europe: Topline to remain flat but EBITDA margin to improve from the region.
􀂃 Russia: High teen growth over the medium term possible. It has a portfolio of around 25 brands of
which 12 are in the top three in respective therapeutic category/molecule.
􀂃 GSK Alliance: Products supply started for 4-5 countries, going as per schedule.
Our view
􀂃 While in the near term the market will likely be concerned about DRRD’s execution capability, we
believe that concerns would recede with new launches and market share gains. Adjusting for the
exclusivity earnings and acquired intangible amortisation, DRRD is trading at ~19x FY12E
earnings.