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DR REDDY'S LABORATORIES
Prospects remain healthy
Notwithstanding a weak quarter, we remain positive on Dr Reddy’s
considering a strong pipeline that will largely unfold in FY12 and FY13,
resulting in strong earnings growth. With settlement of the Nexium patent
litigation, the drug company has extended opportunity for FY15 as well.
We expect branded formulations growth to remain on track with some
blips in between. Dr Reddy’s trades at attractive valuations on reported
earnings in comparison to its peer group. Maintain BUY.
Weak growth in branded formulations. Domestic formulations grew
14.2% YoY this quarter. Dr Reddy’s (DRRD IB - Rs1584.1 - BUY) expects
to deliver full-year growth in the range of 18-20% YoY. Branded export
formulations grew 4.4% YoY with 7% YoY growth in Russia and a drop in
CIS sales. The high base in Russia resulted in growth run rate to decline
and we expect the company to expand 18-20% over there.
Betapharm drags again. Betapharm revenue declined due to further
price erosion because of new tenders during the quarter and pricing
rebates. Newly introduced rebates on the branded portfolio in Germany
also impacted revenue growth and profitability. The company is building
out its pipeline of more products to be launched in the branded segment.
US generics performance in-line. Revenue from North America grew
60% YoY, or 8% QoQ, helped by market-share gains in Prevacid and
Allegra. We expect US revenue to continue growing strongly into FY12,
especially considering launches in 2HFY12. Settlement of the Nexium
patent for launch in May 2014 provides fillip to the US generic pipeline
beyond FY13.
Valuations reasonable, definite triggers later in the year. Dr Reddy’s
trades at reasonable valuations in comparison to some of the other largecap pharma names and, with a number of niche prospects going forward,
valuations on reported basis look attractive. Major opportunities like
Zyprexa and Geodon provide substantial uptick to FY12 profits. Potential
approval of fondaparinux abbreviated new drug applications could provide
an immediate trigger considering that the US Food and Drug
Administration audit of facilities has been completed. The launch of Allegra
D24 (approval already in place) remains stuck due to preliminary
injunction at the district court level and the company is preparing
additional data to demonstrate non-infringement of a key patent.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
DR REDDY'S LABORATORIES
Prospects remain healthy
Notwithstanding a weak quarter, we remain positive on Dr Reddy’s
considering a strong pipeline that will largely unfold in FY12 and FY13,
resulting in strong earnings growth. With settlement of the Nexium patent
litigation, the drug company has extended opportunity for FY15 as well.
We expect branded formulations growth to remain on track with some
blips in between. Dr Reddy’s trades at attractive valuations on reported
earnings in comparison to its peer group. Maintain BUY.
Weak growth in branded formulations. Domestic formulations grew
14.2% YoY this quarter. Dr Reddy’s (DRRD IB - Rs1584.1 - BUY) expects
to deliver full-year growth in the range of 18-20% YoY. Branded export
formulations grew 4.4% YoY with 7% YoY growth in Russia and a drop in
CIS sales. The high base in Russia resulted in growth run rate to decline
and we expect the company to expand 18-20% over there.
Betapharm drags again. Betapharm revenue declined due to further
price erosion because of new tenders during the quarter and pricing
rebates. Newly introduced rebates on the branded portfolio in Germany
also impacted revenue growth and profitability. The company is building
out its pipeline of more products to be launched in the branded segment.
US generics performance in-line. Revenue from North America grew
60% YoY, or 8% QoQ, helped by market-share gains in Prevacid and
Allegra. We expect US revenue to continue growing strongly into FY12,
especially considering launches in 2HFY12. Settlement of the Nexium
patent for launch in May 2014 provides fillip to the US generic pipeline
beyond FY13.
Valuations reasonable, definite triggers later in the year. Dr Reddy’s
trades at reasonable valuations in comparison to some of the other largecap pharma names and, with a number of niche prospects going forward,
valuations on reported basis look attractive. Major opportunities like
Zyprexa and Geodon provide substantial uptick to FY12 profits. Potential
approval of fondaparinux abbreviated new drug applications could provide
an immediate trigger considering that the US Food and Drug
Administration audit of facilities has been completed. The launch of Allegra
D24 (approval already in place) remains stuck due to preliminary
injunction at the district court level and the company is preparing
additional data to demonstrate non-infringement of a key patent.
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