Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Dr. Reddy's --------------------------------------------------------------------- Maintain OUTPERFORM
Adjusted for one-offs, profits in line; healthy margin improvement
● Reported EBITDA was 10% lower than we expected on in-line
sales, as SG&A included a US$9 mn one-time hit due to: (1) OTC
promotion charges in Russia for new launches, (2) refinancing
charges for Betapharm debt, and 3) litigation charges on Allegra
D24, which is now expected to get resolved this quarter.
● Adjusted for this, EBITDA would have been 2% ahead, as gross
margins were better than we expected despite an inferior product
mix (more API, less formulations than we expected). Margins
should improve further in 4Q11 when we see the full quarter impact of
3Q launches. Similarly, secondary sales in Russia are still doing well.
● The company still believes that fondaparinux and Allegra D24
approvals are possible this quarter. We have now moved
fondaparinux forward to 1Q12; as a result, our FY11E EPS falls.
Dr. Reddy’s also believes Allegra D24 is possible in 4Q; we do not
build in any sales. Our FY11E ROCE is now 17%, lower than the
18-22% guidance.
● We maintain FY12/13 estimates and remain believers of strong
earnings growth over the next three years. Our FY12E EPS-based
target price remains unchanged. Maintain OUTPERFORM.
Headline numbers misleading; in line quarter
EBITDA was 10% lower than we expected on in line sales.
Management clarified that SG&A included a US$9 mn one-time
charge, comprising: (1) OTC promotion charges in Russia for the new
launches – this is a seasonal charge, so should not be annualised; (2)
refinancing charges for Betapharm debt; and 3) litigation charges on
Allegra D24, which is now expected to get resolved this quarter. The
YoY jump in R&D was expected.
Adjusted for that, EBITDA was 2% ahead of estimates, as gross
margins improved more than we expected despite an inferior revenue
mix (i.e., formulations missed but bulk drug sales surprised on the
upside) and a stronger rupee. With some of the new launches of
Accolate, Lansoprazole and Valacyclovir seeing sales only for 1-1.5
months, margins can improve further in 4Q11.
Conference call takeaways
● The company continues to believe that it can get fondaparinux
and Allegra D24 approvals this quarter. We have now moved
fondaparinux forward to 1Q12: this explains the cut in our FY11E
EPS. We do not have any Allegra D24 sales in our estimates (can
be US$10 mn/quarter in sales), though the company said it
expects an early resolution, as the case hearing is starting end-
Jan. If not, FY11 ROCE is expected to miss the low-end of the
ROCE guidance range of 18-22%. We now have 17%.
● While sales in Russia missed our numbers, they remain healthy –
Dec-09 was a quarter when most companies in Russia took price
increases before the implementation of VED price cuts. This led to
a high base. Secondary sales remain healthy.
● Weakness persists in Germany – the company, despite being
vertically integrated from India, continues to lose tenders.
● The API business is starting to look up after several quarters of
weakness. We believe Dr. Reddy’s API division is also likely to
benefit from US patent expiries over the next two years.
● The company has settled with Astra on Nexium and Accolate, and
is likely to launch Nexium on 27 May 2014 or earlier. Accolate is
now a no-risk; it was an at-risk launch.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Dr. Reddy's --------------------------------------------------------------------- Maintain OUTPERFORM
Adjusted for one-offs, profits in line; healthy margin improvement
● Reported EBITDA was 10% lower than we expected on in-line
sales, as SG&A included a US$9 mn one-time hit due to: (1) OTC
promotion charges in Russia for new launches, (2) refinancing
charges for Betapharm debt, and 3) litigation charges on Allegra
D24, which is now expected to get resolved this quarter.
● Adjusted for this, EBITDA would have been 2% ahead, as gross
margins were better than we expected despite an inferior product
mix (more API, less formulations than we expected). Margins
should improve further in 4Q11 when we see the full quarter impact of
3Q launches. Similarly, secondary sales in Russia are still doing well.
● The company still believes that fondaparinux and Allegra D24
approvals are possible this quarter. We have now moved
fondaparinux forward to 1Q12; as a result, our FY11E EPS falls.
Dr. Reddy’s also believes Allegra D24 is possible in 4Q; we do not
build in any sales. Our FY11E ROCE is now 17%, lower than the
18-22% guidance.
● We maintain FY12/13 estimates and remain believers of strong
earnings growth over the next three years. Our FY12E EPS-based
target price remains unchanged. Maintain OUTPERFORM.
Headline numbers misleading; in line quarter
EBITDA was 10% lower than we expected on in line sales.
Management clarified that SG&A included a US$9 mn one-time
charge, comprising: (1) OTC promotion charges in Russia for the new
launches – this is a seasonal charge, so should not be annualised; (2)
refinancing charges for Betapharm debt; and 3) litigation charges on
Allegra D24, which is now expected to get resolved this quarter. The
YoY jump in R&D was expected.
Adjusted for that, EBITDA was 2% ahead of estimates, as gross
margins improved more than we expected despite an inferior revenue
mix (i.e., formulations missed but bulk drug sales surprised on the
upside) and a stronger rupee. With some of the new launches of
Accolate, Lansoprazole and Valacyclovir seeing sales only for 1-1.5
months, margins can improve further in 4Q11.
Conference call takeaways
● The company continues to believe that it can get fondaparinux
and Allegra D24 approvals this quarter. We have now moved
fondaparinux forward to 1Q12: this explains the cut in our FY11E
EPS. We do not have any Allegra D24 sales in our estimates (can
be US$10 mn/quarter in sales), though the company said it
expects an early resolution, as the case hearing is starting end-
Jan. If not, FY11 ROCE is expected to miss the low-end of the
ROCE guidance range of 18-22%. We now have 17%.
● While sales in Russia missed our numbers, they remain healthy –
Dec-09 was a quarter when most companies in Russia took price
increases before the implementation of VED price cuts. This led to
a high base. Secondary sales remain healthy.
● Weakness persists in Germany – the company, despite being
vertically integrated from India, continues to lose tenders.
● The API business is starting to look up after several quarters of
weakness. We believe Dr. Reddy’s API division is also likely to
benefit from US patent expiries over the next two years.
● The company has settled with Astra on Nexium and Accolate, and
is likely to launch Nexium on 27 May 2014 or earlier. Accolate is
now a no-risk; it was an at-risk launch.
No comments:
Post a Comment