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UBS Investment Research
First Read: Dr. Reddy's Labs
N ice acquisition in Russia
Event: Dr Reddy’s acquires JB Chemicals prescription business
Dr Reddy’s acquired the prescription pharma business of JB Chemicals in Russia
for US$35mn involving purchase of brands and dossiers. The co. has acquired 20
brands with total sales of US$20mn last year. DRL has also entered into a 3 yr
supply agreement with JB Chemicals giving it adequate time to eventually transfer
the products to its own manufacturing facilities.
Impact: An accretive deal, strengthen the strong presence in Russia
According to the co. the business has healthy EBITDA margins. The co. will be
able to leverage its existing sales force to sell these new products. DRL has a
strong presence in Russia with sales of US$200mn in FY11 and sales force of ~500
people. Co. believes the acquired products have significant growth potential and
are currently under exploited. Deal is expected to close by Sep’11 end.
Action: Maintain Buy, Need more such ‘smart’ acquisitions
In our report Indian Pharma “Looking for new trigger” dated Jun 17, 2011 we have
highlighted that Indian cos. need to make meaningful acquisitions. We like the fact
that DRL mgmt. is now focusing on such deals. We maintain our Buy on the stock
given strong near term earnings growth outlook and reasonable valuations.
Valuation: Maintain Buy, PT Rs 1,850
We derive our PT from a DCF-based methodology and explicitly forecast long
term valuation drivers using UBS’s VCAM tool. We assume a WACC of 11%.
Dr. Reddy's Labs
Founded as a bulk drug firm in the 1980s, Dr Reddy's Labs (DRL) is now an
integrated company with a presence in the domestic and global formulation
segments with FY10 revenue of Rs69.9bn. Pharmaceutical services & active
ingredients made up 30% of sales in FY10 and formulations 70%. DRL derives
14% of sales from formulations sold in India, 14% from Europe and 25% from
the US, and 17% from finished dosages sold in the RoW. The remaining 30%
comes from pharmaceutical services & active ingredients. R&D is focused on
metabolic disorders, cardiovascular indications, anti-infectives and antiinflammation.
Statement of Risk
We believe risks include regulatory risks, FDA approval, timing of approvals,
litigation (including the appeal process), accounting/disclosure, and product
pricing risk from generics competition. Pricing pressure in the US market
because of increased competition may continue. Margin pressure on account of
appreciation of the rupee could also negatively impact earnings. Dr Reddys also
has high exposure to the API segment where margins are more volatile than the
formulations segment.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
First Read: Dr. Reddy's Labs
N ice acquisition in Russia
Event: Dr Reddy’s acquires JB Chemicals prescription business
Dr Reddy’s acquired the prescription pharma business of JB Chemicals in Russia
for US$35mn involving purchase of brands and dossiers. The co. has acquired 20
brands with total sales of US$20mn last year. DRL has also entered into a 3 yr
supply agreement with JB Chemicals giving it adequate time to eventually transfer
the products to its own manufacturing facilities.
Impact: An accretive deal, strengthen the strong presence in Russia
According to the co. the business has healthy EBITDA margins. The co. will be
able to leverage its existing sales force to sell these new products. DRL has a
strong presence in Russia with sales of US$200mn in FY11 and sales force of ~500
people. Co. believes the acquired products have significant growth potential and
are currently under exploited. Deal is expected to close by Sep’11 end.
Action: Maintain Buy, Need more such ‘smart’ acquisitions
In our report Indian Pharma “Looking for new trigger” dated Jun 17, 2011 we have
highlighted that Indian cos. need to make meaningful acquisitions. We like the fact
that DRL mgmt. is now focusing on such deals. We maintain our Buy on the stock
given strong near term earnings growth outlook and reasonable valuations.
Valuation: Maintain Buy, PT Rs 1,850
We derive our PT from a DCF-based methodology and explicitly forecast long
term valuation drivers using UBS’s VCAM tool. We assume a WACC of 11%.
Dr. Reddy's Labs
Founded as a bulk drug firm in the 1980s, Dr Reddy's Labs (DRL) is now an
integrated company with a presence in the domestic and global formulation
segments with FY10 revenue of Rs69.9bn. Pharmaceutical services & active
ingredients made up 30% of sales in FY10 and formulations 70%. DRL derives
14% of sales from formulations sold in India, 14% from Europe and 25% from
the US, and 17% from finished dosages sold in the RoW. The remaining 30%
comes from pharmaceutical services & active ingredients. R&D is focused on
metabolic disorders, cardiovascular indications, anti-infectives and antiinflammation.
Statement of Risk
We believe risks include regulatory risks, FDA approval, timing of approvals,
litigation (including the appeal process), accounting/disclosure, and product
pricing risk from generics competition. Pricing pressure in the US market
because of increased competition may continue. Margin pressure on account of
appreciation of the rupee could also negatively impact earnings. Dr Reddys also
has high exposure to the API segment where margins are more volatile than the
formulations segment.
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