Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Dr. Reddy's --------------------------------------------------------------------- Maintain OUTPERFORM
What’s one-off and what’s not in FY13 guidance?
● Management’s FY13 sales guidance of US$2.7 bn includes oneoffs,
but overall sales should grow in FY14. Assuming no one-offs
in FY14, the guidance implies that FY13 one-offs are US$350 mn
(at base business growth of 15%). This could add 8% to CS’
FY13E base EPS of Rs97.
● 4Q11 sales were in line (ex. Allegra D-24) but the mix was inferior.
India growth was just 5% YoY as aggressive pricing and channel
promotion by competitors resulted in a 5% price decline on Dr.
Reddy’s portfolio (70% is acute). Dr. Reddy’s expects a bounceback
in FY12 but April 2011 AIOCD data still show a weak growth of 6%.
● Gross margins ex. Allegra D-24 declined 180 bp QoQ due to:
1) strong growth of the low-margin API division, 2) incremental OTC
sales in Russia are from in-licensed products and at lower margins,
3) 5% price decline on India portfolio and 4) price erosion on Lotrel.
● We maintain our OUTPERFORM, given strong earnings CAGR of
23% until FY13 and multiple support from strong FY13 guidance.
We increase our target price by 2%, to Rs1,800, as we roll
forward to FY13E base EPS (18x P/E). We reduce our
FY12E/13E EPS by 4%/1% due to delay in Fonda launch and
increase in interest cost due to bonus debentures.
Figure 1: FY13 guidance vs CS projections
(US$ mn) FY11 actual FY13 CS FY13 guidance
Generics* 507 738 900
Branded 576 785 900
PSAI 531 658 900
Total 1,659 2,307 2,700
*BASF revenues included as part of PSAI. Source: Company data, CS estimates
What’s one-off and what’s not in FY13 guidance?
Management maintains that with organic growth it currently has
revenue visibility until US$2.7 bn in FY13 vs consensus sales
estimate of US$2.3 bn. The EPS contribution from extra sales of
US$400 mn could be Rs16 and adds 15% to FY13E EPS. The
unknown variable is how much of this upside is recurring. The
company has also guided that FY13E includes one-offs but total sales
in FY14 should grow. Assuming no one-offs in FY14, the guidance
implies that one-offs in FY13 sales amounts to US$350 mn (at base
business sales growth of 15%) or half of the sales gap is nonrecurring.
4Q11 margins were weak excluding Allegra D-24
Excluding Allegra D-24, sales were in line with our estimates but the
product mix was inferior. Indian sales growth was just 5% YoY as
aggressive pricing and channel promotion (higher bonus offers) by the
competitors in the acute segment resulted in price decline of 5% on Dr.
Reddy’s domestic portfolio (70% of the portfolio is acute).
Management expects the growth to bounce back in FY12 but April
2011 AIOCD data still shows a weak growth of 6%.
Gross margins ex. Allegra D-24 declined 180 bp sequentially due to:
1) strong growth of the low-margin API division, 2) price decline of 5%
on domestic portfolio, 3) incremental OTC sales in Russia are from inlicensed
products and at lower margins and 4) price erosion has been
significant on Lotrel after Par pharma entered in January 2011.
Maintain OUTPERFORM; target price of Rs1,800
We maintain our OUTPERFORM, given a strong earnings CAGR of
23% over the next two years and multiple support from strong FY13
guidance. We increase our target price by 2%, to Rs1,800, as we roll
forward to FY13E base EPS of Rs97 (18x P/E) and value FTF pipeline
at Rs46/share. Our target price has potential upside of: 1)
Rs170/share if our estimation of one-offs of US$350 mn in FY13 is
correct and 2) Rs200/share from multiple expansion from 18x to 20x
(sector average multiple) as we draw closer to FY13E earnings.
Key takeaways from the conference call
● Net debt increased US$180 mn QoQ due to bonus debenture issue of
US$113 mn and increase in receivables in the US and API division.
● Allegra market size reduced by 25-30% after the transition from
Rx to OTC. No inventory adjustment is expected in 1Q12 on D-24.
● FY12 capex target is Rs8-9 bn and the capacity should expand by
44% until FY13.
● Dr. Reddy’s is not looking at major acquisitions currently and the
deal size under consideration is US$30-50 mn.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Dr. Reddy's --------------------------------------------------------------------- Maintain OUTPERFORM
What’s one-off and what’s not in FY13 guidance?
● Management’s FY13 sales guidance of US$2.7 bn includes oneoffs,
but overall sales should grow in FY14. Assuming no one-offs
in FY14, the guidance implies that FY13 one-offs are US$350 mn
(at base business growth of 15%). This could add 8% to CS’
FY13E base EPS of Rs97.
● 4Q11 sales were in line (ex. Allegra D-24) but the mix was inferior.
India growth was just 5% YoY as aggressive pricing and channel
promotion by competitors resulted in a 5% price decline on Dr.
Reddy’s portfolio (70% is acute). Dr. Reddy’s expects a bounceback
in FY12 but April 2011 AIOCD data still show a weak growth of 6%.
● Gross margins ex. Allegra D-24 declined 180 bp QoQ due to:
1) strong growth of the low-margin API division, 2) incremental OTC
sales in Russia are from in-licensed products and at lower margins,
3) 5% price decline on India portfolio and 4) price erosion on Lotrel.
● We maintain our OUTPERFORM, given strong earnings CAGR of
23% until FY13 and multiple support from strong FY13 guidance.
We increase our target price by 2%, to Rs1,800, as we roll
forward to FY13E base EPS (18x P/E). We reduce our
FY12E/13E EPS by 4%/1% due to delay in Fonda launch and
increase in interest cost due to bonus debentures.
Figure 1: FY13 guidance vs CS projections
(US$ mn) FY11 actual FY13 CS FY13 guidance
Generics* 507 738 900
Branded 576 785 900
PSAI 531 658 900
Total 1,659 2,307 2,700
*BASF revenues included as part of PSAI. Source: Company data, CS estimates
What’s one-off and what’s not in FY13 guidance?
Management maintains that with organic growth it currently has
revenue visibility until US$2.7 bn in FY13 vs consensus sales
estimate of US$2.3 bn. The EPS contribution from extra sales of
US$400 mn could be Rs16 and adds 15% to FY13E EPS. The
unknown variable is how much of this upside is recurring. The
company has also guided that FY13E includes one-offs but total sales
in FY14 should grow. Assuming no one-offs in FY14, the guidance
implies that one-offs in FY13 sales amounts to US$350 mn (at base
business sales growth of 15%) or half of the sales gap is nonrecurring.
4Q11 margins were weak excluding Allegra D-24
Excluding Allegra D-24, sales were in line with our estimates but the
product mix was inferior. Indian sales growth was just 5% YoY as
aggressive pricing and channel promotion (higher bonus offers) by the
competitors in the acute segment resulted in price decline of 5% on Dr.
Reddy’s domestic portfolio (70% of the portfolio is acute).
Management expects the growth to bounce back in FY12 but April
2011 AIOCD data still shows a weak growth of 6%.
Gross margins ex. Allegra D-24 declined 180 bp sequentially due to:
1) strong growth of the low-margin API division, 2) price decline of 5%
on domestic portfolio, 3) incremental OTC sales in Russia are from inlicensed
products and at lower margins and 4) price erosion has been
significant on Lotrel after Par pharma entered in January 2011.
Maintain OUTPERFORM; target price of Rs1,800
We maintain our OUTPERFORM, given a strong earnings CAGR of
23% over the next two years and multiple support from strong FY13
guidance. We increase our target price by 2%, to Rs1,800, as we roll
forward to FY13E base EPS of Rs97 (18x P/E) and value FTF pipeline
at Rs46/share. Our target price has potential upside of: 1)
Rs170/share if our estimation of one-offs of US$350 mn in FY13 is
correct and 2) Rs200/share from multiple expansion from 18x to 20x
(sector average multiple) as we draw closer to FY13E earnings.
Key takeaways from the conference call
● Net debt increased US$180 mn QoQ due to bonus debenture issue of
US$113 mn and increase in receivables in the US and API division.
● Allegra market size reduced by 25-30% after the transition from
Rx to OTC. No inventory adjustment is expected in 1Q12 on D-24.
● FY12 capex target is Rs8-9 bn and the capacity should expand by
44% until FY13.
● Dr. Reddy’s is not looking at major acquisitions currently and the
deal size under consideration is US$30-50 mn.
No comments:
Post a Comment