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Domestic formulation: Gaining priority
We expect Dr. Reddys Laboratories’ (DRRD) domestic market to grow at 17%
over FY10-13E led by strategic initiatives such as field force expansion (750
additions in existing markets and 1,600 contractual field force for rural markets)
and increase in new launches. Its differentiated product pipeline such as biosimilars
(Reditux and Cresp) and novel formulations like Fentanyl patches, have
also been successful. Our survey indicates that the company’s supply chain
initiatives, which had impacted growth in FY09, are now contributing to better
performance and incrementally higher returns as inventory in channel has dipped
to 7-8 days versus 15-21 days (best among peers).
US pipeline of limited competition products
DRRD has the most interesting pipeline of limited competition and Para IV
products (34 Para IV, 18 have FTF status), however execution of the same is
critical to attain the goal of USD 1bn revenue from current base of USD 350 mn
(FY10) in the US. We expect US to post 27% CAGR over FY10-13E led by ramp-up
in sales from existing products such as Omeprazole OTC, Prevacid and Tacrolimus
and new product launches such as Fondaperinux, Finestride, Olanzapine,
Ziprasidon and Rivastigmin.
GSK alliance to aid growth momentum in emerging markets
DRRD has exited a few non-core ROW markets in FY10 and forged an alliance with
GSK to capture the growing opportunity in the branded generic space in emerging
markets. The company has already started supplying products to GSK for five-six
markets including Brazil and Mexico; however, full impact on revenue will be
visible in the next two-three years.
Outlook and valuations: Execution critical for growth; upgrade to ’BUY’
We remain positive on strong growth visibility in branded generics, improved
traction in limited competition products and potential upside from the GSK deal.
We maintain our core earnings estimate of INR 76 and INR 88 for FY12 and FY13,
respectively. Our SOTP-based fair value at INR 1,950, values base business at
21x FY13E core EPS (10% premium to sector multiple due to strong pipeline in
US) and assigns INR 94 per share as NPV of Para IVs. Hence, we upgrade our
recommendation to ‘BUY/Sector Outperformer’ from ‘HOLD/Sector
Outperformer’. Execution in US is a key risk.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Domestic formulation: Gaining priority
We expect Dr. Reddys Laboratories’ (DRRD) domestic market to grow at 17%
over FY10-13E led by strategic initiatives such as field force expansion (750
additions in existing markets and 1,600 contractual field force for rural markets)
and increase in new launches. Its differentiated product pipeline such as biosimilars
(Reditux and Cresp) and novel formulations like Fentanyl patches, have
also been successful. Our survey indicates that the company’s supply chain
initiatives, which had impacted growth in FY09, are now contributing to better
performance and incrementally higher returns as inventory in channel has dipped
to 7-8 days versus 15-21 days (best among peers).
US pipeline of limited competition products
DRRD has the most interesting pipeline of limited competition and Para IV
products (34 Para IV, 18 have FTF status), however execution of the same is
critical to attain the goal of USD 1bn revenue from current base of USD 350 mn
(FY10) in the US. We expect US to post 27% CAGR over FY10-13E led by ramp-up
in sales from existing products such as Omeprazole OTC, Prevacid and Tacrolimus
and new product launches such as Fondaperinux, Finestride, Olanzapine,
Ziprasidon and Rivastigmin.
GSK alliance to aid growth momentum in emerging markets
DRRD has exited a few non-core ROW markets in FY10 and forged an alliance with
GSK to capture the growing opportunity in the branded generic space in emerging
markets. The company has already started supplying products to GSK for five-six
markets including Brazil and Mexico; however, full impact on revenue will be
visible in the next two-three years.
Outlook and valuations: Execution critical for growth; upgrade to ’BUY’
We remain positive on strong growth visibility in branded generics, improved
traction in limited competition products and potential upside from the GSK deal.
We maintain our core earnings estimate of INR 76 and INR 88 for FY12 and FY13,
respectively. Our SOTP-based fair value at INR 1,950, values base business at
21x FY13E core EPS (10% premium to sector multiple due to strong pipeline in
US) and assigns INR 94 per share as NPV of Para IVs. Hence, we upgrade our
recommendation to ‘BUY/Sector Outperformer’ from ‘HOLD/Sector
Outperformer’. Execution in US is a key risk.
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