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Dr. Reddy's Lab (DRRD IN)
OW: Multiple near-term catalysts going into 2HFY12
Strong top line led by US and Russian business; PSAI
increase was a surprise element in sales
Net profit at INR3.1bn was in line with our estimate, higher
than consensus on stronger sales
Margins lower than estimated due to higher raw material.
Maintain OW, rolling TP to Sep-12 (new INR1950, previous
INR2000)
2QFY12 adjusted net profit of INR3.08bn, up 7.6% yoy was in line with our estimate
(but higher than consensus of INR2.86bn). Sales at INR22.7bn (+21% yoy), came in
higher than expected, driven by strong performance in the US, Russia and bulk. The
operating margin was lower than expected, mainly due to high raw material costs and
SG&A-related expenses (which include costs related to the Bristol facility, OTC expenses
in Russia and higher staff costs).
Strong performance in the US, Russia and PSAI: US sales were up 42% yoy on the
back of new launches including Allegra D24 OTC and fondaparinux and market share
improvement in existing products like lansoprazole. Russia saw strong volume growth in
key brands, up 27% yoy in constant Ruble terms. India was better than estimated with 9%
yoy growth. RoW declined 8% due to the Venezuelan currency devaluation of c70%
(excluding which growth in most markets was strong). But the most surprising element
was the PSAI segment, up 28% yoy (after six consecutive muted quarters) due to new
bulk introductions and new customer orders in the service business.
US outlook strong for 2H: Immediate Zyprexa exclusivity, upcoming 3QFY12 launches
of Augemntin/Amoxil, and FY13 launches of Geodon, Lipitor, Plavix, and Seroquel
generics make the next six months pretty eventful. We expect cUSD140m of sales from
Zyprexa (including Zyprexa ODT which is a small but meaningful opportunity with two
other players – Apotex and Par).
Maintain OW, rolling our TP to Sep-12: FY13 sales guidance of USD2.7bn remains
intact; we increase our sales expectation from bulk post the strong 2Q and build in higher
costs given higher R&D and SG&A growth expected. Additionally, we make changes to
our valuation as we roll our TP to Sep-12. Our new TP of INR1950 is 20x Sep-13e EPS of
INR96.3 (does not include upside from FTF opportunities) plus para-IV value of INR20.
We reiterate our OW on DRRD which is our top pick in the sector given the multiple
near-term catalysts and inexpensive valuation. At the current price, the stock is trading at
22.6x FY12e and 17.7x FY13e EPS. The key risk remains slower recovery in the
domestic business, a delay in approvals in the US and the impact of changing regulation
on high margin Russian business
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Dr. Reddy's Lab (DRRD IN)
OW: Multiple near-term catalysts going into 2HFY12
Strong top line led by US and Russian business; PSAI
increase was a surprise element in sales
Net profit at INR3.1bn was in line with our estimate, higher
than consensus on stronger sales
Margins lower than estimated due to higher raw material.
Maintain OW, rolling TP to Sep-12 (new INR1950, previous
INR2000)
2QFY12 adjusted net profit of INR3.08bn, up 7.6% yoy was in line with our estimate
(but higher than consensus of INR2.86bn). Sales at INR22.7bn (+21% yoy), came in
higher than expected, driven by strong performance in the US, Russia and bulk. The
operating margin was lower than expected, mainly due to high raw material costs and
SG&A-related expenses (which include costs related to the Bristol facility, OTC expenses
in Russia and higher staff costs).
Strong performance in the US, Russia and PSAI: US sales were up 42% yoy on the
back of new launches including Allegra D24 OTC and fondaparinux and market share
improvement in existing products like lansoprazole. Russia saw strong volume growth in
key brands, up 27% yoy in constant Ruble terms. India was better than estimated with 9%
yoy growth. RoW declined 8% due to the Venezuelan currency devaluation of c70%
(excluding which growth in most markets was strong). But the most surprising element
was the PSAI segment, up 28% yoy (after six consecutive muted quarters) due to new
bulk introductions and new customer orders in the service business.
US outlook strong for 2H: Immediate Zyprexa exclusivity, upcoming 3QFY12 launches
of Augemntin/Amoxil, and FY13 launches of Geodon, Lipitor, Plavix, and Seroquel
generics make the next six months pretty eventful. We expect cUSD140m of sales from
Zyprexa (including Zyprexa ODT which is a small but meaningful opportunity with two
other players – Apotex and Par).
Maintain OW, rolling our TP to Sep-12: FY13 sales guidance of USD2.7bn remains
intact; we increase our sales expectation from bulk post the strong 2Q and build in higher
costs given higher R&D and SG&A growth expected. Additionally, we make changes to
our valuation as we roll our TP to Sep-12. Our new TP of INR1950 is 20x Sep-13e EPS of
INR96.3 (does not include upside from FTF opportunities) plus para-IV value of INR20.
We reiterate our OW on DRRD which is our top pick in the sector given the multiple
near-term catalysts and inexpensive valuation. At the current price, the stock is trading at
22.6x FY12e and 17.7x FY13e EPS. The key risk remains slower recovery in the
domestic business, a delay in approvals in the US and the impact of changing regulation
on high margin Russian business
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