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Dr. Reddy's Lab.
OW: 2HFY12 replete with US pipeline abundance
Adjusted net profit in-line despite higher sales growth,
though falls below consensus expectations
US growth strong, pipeline is robust with impending launch
of fondaparinux, Allegra D24 OTC, and olanzapine in CY12
Maintain OW; we reduce our 12 month TP to INR2,000 from
INR2,080
Dr. Reddy’s reported 1QFY12 adjusted net profit of INR2.47bn, up c18% yoy after
adjusting for: a) exceptional INR136mn VRS related charges b) profit from sale of
investments and c) lower tax provisions, which is largely in-line with our estimate of
INR2.55bn but c9% below consensus. Sales at INR19.8bn were up 18% yoy, higher than
our estimate by 4% essentially due to the stronger US. Despite the US being higher than
our estimate by c15%, adjusted EBITA margins at 15.9% were slightly lower than our
estimate of 16.3% owing to higher SGA expenses, which jumped 20% yoy.
US pipeline makes for rosy 2HFY12: US sales were up 48% yoy on back of strongerthan-expected performance of new launches including plain Allegra OTC, high strength
lotrel, donepezil, and increasing market share in lansoprazole, tacrolimus etc. The
company has received two strong approvals including – fondaparinux (launched) and
Allegra D-24 OTC (launch in Q3FY12) recently. DRRD plans c10 products in the US in
FY12 including FTF opportunities of olanzapine and ziprasidone. The company expects to
launch fondaparinux in a phased manner, targeting the retail channel first (constitutes 40%
of the market). Despite the buzz of an authorized generic entry in the product, market
share and pricing expectations are robust.
India sluggish but other regions in-line: Domestic formulations were weak at 6% yoy
growth. The company continues to face headwinds from competitive pricing in the acute
segment and expects to do better in the second half. PSAI grew c7% yoy in the quarter.
Introducing FY14e, cutting FY12e and FY13e EPS by c3-4%, maintain OW: We are
revising our model post results, factoring in an import ban on its Mexico facility, higher
SGA expenses, and an increase in expected tax rate. This is offset by higher upside from
early fondaparinux approval, the expected launch of Allegra-D 24 OTC and contribution
from the Bristol facility. We continue to value DRRD at 22x (10% premium to sector
average) FY13e EPS of INR90 and add INR20 for para-IV value. Key risks include a
slower ramp up in fondaparinux and OTC portfolio, a decline in Russia following price
controls and a delay in recovery in the domestic market.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Dr. Reddy's Lab.
OW: 2HFY12 replete with US pipeline abundance
Adjusted net profit in-line despite higher sales growth,
though falls below consensus expectations
US growth strong, pipeline is robust with impending launch
of fondaparinux, Allegra D24 OTC, and olanzapine in CY12
Maintain OW; we reduce our 12 month TP to INR2,000 from
INR2,080
Dr. Reddy’s reported 1QFY12 adjusted net profit of INR2.47bn, up c18% yoy after
adjusting for: a) exceptional INR136mn VRS related charges b) profit from sale of
investments and c) lower tax provisions, which is largely in-line with our estimate of
INR2.55bn but c9% below consensus. Sales at INR19.8bn were up 18% yoy, higher than
our estimate by 4% essentially due to the stronger US. Despite the US being higher than
our estimate by c15%, adjusted EBITA margins at 15.9% were slightly lower than our
estimate of 16.3% owing to higher SGA expenses, which jumped 20% yoy.
US pipeline makes for rosy 2HFY12: US sales were up 48% yoy on back of strongerthan-expected performance of new launches including plain Allegra OTC, high strength
lotrel, donepezil, and increasing market share in lansoprazole, tacrolimus etc. The
company has received two strong approvals including – fondaparinux (launched) and
Allegra D-24 OTC (launch in Q3FY12) recently. DRRD plans c10 products in the US in
FY12 including FTF opportunities of olanzapine and ziprasidone. The company expects to
launch fondaparinux in a phased manner, targeting the retail channel first (constitutes 40%
of the market). Despite the buzz of an authorized generic entry in the product, market
share and pricing expectations are robust.
India sluggish but other regions in-line: Domestic formulations were weak at 6% yoy
growth. The company continues to face headwinds from competitive pricing in the acute
segment and expects to do better in the second half. PSAI grew c7% yoy in the quarter.
Introducing FY14e, cutting FY12e and FY13e EPS by c3-4%, maintain OW: We are
revising our model post results, factoring in an import ban on its Mexico facility, higher
SGA expenses, and an increase in expected tax rate. This is offset by higher upside from
early fondaparinux approval, the expected launch of Allegra-D 24 OTC and contribution
from the Bristol facility. We continue to value DRRD at 22x (10% premium to sector
average) FY13e EPS of INR90 and add INR20 for para-IV value. Key risks include a
slower ramp up in fondaparinux and OTC portfolio, a decline in Russia following price
controls and a delay in recovery in the domestic market.
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