Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Dr Reddy's Laboratories (DRRD)
Pharmaceuticals
High FTF sales lead to outperformance. Higher FTF sales led to outperformance in
this quarter; however, base business performance was disappointing due to no qoq
pick-up in US, flat sales in Russia yoy and significant increase in SG&A costs, in line with
base business sales growth. We expect muted base business EPS growth in FY2012E
due to (1) flat margin, (2) pick-up in tax rate and (3) higher interest costs. However, we
expect core EPS growth at 25% in FY2013E. We value DRL at (1) 20X base business EPS
of Rs86 (down 4% due to higher tax rate) and (2) Rs21 from limited competition in US
launches. Downgrade to REDUCE (was ADD), TP at Rs1,740 (was Rs1,800).
Sales at Rs27.7 bn was up 46% yoy, 3% higher than our estimates due to higher FTF sales
Reported sales grew 46% yoy to Rs27.7 bn, 3% higher than our estimates with generics segment
sales beating our estimates due to higher FTF sales in US while the PSAI segment was 9% lower
than our estimates. The main beat came due to US revenues on account of higher FTF sales of
US$99 mn, versus our estimate of US$35 mn; however, base business revenues in US were flat
qoq at US$137 mn, lower than our estimates as we had built in a sequential increase of US$8 mn.
Excluding these FTF sales, sales growth was at 22.5%, lower than our estimate of 30% due to
poor sales growth in US and Russia. (1) India finished dosage grew poorly for the fourth quarter in
a row, although sales growth has been picking up qoq from single-digit, reaching 11% this
quarter, in line with our estimates, (2) Russia disappointed as it was down US$10 mn qoq in what
is seasonally a strong quarter, to US$54 mn, flat yoy due to (a) late onset of winter and (b)
pullback of sales in order to protect receivables. However, 4QFY12E sales growth is expected to
remain strong, (3) Germany grew yoy in Rupee terms for the first time in FY2012; however, was
flat yoy in Euro terms while (4) RoW sales grew 34% yoy, 7% higher than our estimates, due to
strong sales in South Africa and Venezuela (main RoW market).
EBITDA margin at 32%, versus our estimate of 26%
EBITDA excluding forex income and other income was at Rs8.8 bn or 32% of sales, 28% higher
than our estimates due to higher proportion of high-margin sales from FTF product - Olanzapine in
US. Excluding this sales, we estimate base business EBITDA margin at 22.8%, up 100 bps qoq and
70 bps higher than our estimates due to only 4% sequential increase in R&D costs. However, base
business gross margin was flat qoq due to lower proportion of sales from high-margin Russia.
SG&A costs excluding depreciation/amortization were up 20% yoy, in line with our estimates.
Lower interest costs, down qoq, and forex income of Rs285 mn resulted in PBT being 44% higher
than our estimates. However, tax rate at 34% was much higher than our estimate of 20% due to
higher sales form US resulting in reported PAT being 19% higher than our estimates
We increase our FY2012E PAT by 10% due to higher FTF sales in 3QFY12,
FY2013E PAT remains unchanged
We factor in base business sales growth of 21% in FY2012E, same as that reported in
9MFY12. We estimate base business margin at 22.3% in FY2012E versus 21.8% reported in
9MFY12. While reported PAT is up 40% in 9MFY12, excluding FTF sales in 3QFY12, PAT is
up 4% in 9MFY12; we accordingly factor a 5% increase in base business EPS in FY2012E.
However, excluding forex gain of Rs594 mn in 9MFY12 and forex loss of Rs319 mn in
9MFY11, PAT is down 8% yoy in 9MFY12.
Key takeaways from conference call
Gross margin in generics business was at 66% versus 63% in 2QFY12 despite presence of
FTF sales this quarter as proportion of high-margin sales from Russia fell to 10% from 12-
13% in 1HFY12.
Despite limited pick-up in R&D costs in 9MFY12, DRL expects R&D costs at 7-7.5% in
FY2013E.
Market share in Arixtra is at 18% (overall market) although DRL is participating only in
retail market currently. Production bottlenecks remain and are expected to be sorted out
in another three months post which DRL will launch it in the hospital market which
accounts for majority of Arixtra sales.
DRL expects US$100 mn in sales from its biosimilars portfolio in emerging markets
including India in 3-4 years from now from US$30 mn currently. DRL is in the process of
registering Rituximab in several EMs currently.
US OTC sales are US$100 mn in 9MFY12, with Allegra D 24 OTC contributing
insignificantly. By 4QFY13E, it expects to clock an annualized sales run-rate of US$200
mn implying it expects quarterly run-rate to shoot up to US$50 mn from US$33 mn
currently. We estimate OTC sales at US$170 mn in FY2013E from US$133 mn in FY2012E.
SG&A spend excluding amortization/depreciation was up 20% yoy in 3QFY12 and up
26% yoy in 9MFY12 compared to base business sales growth of around 20%. However,
in percentage terms, SG&A cost is expected to come down slightly as sales from Russia
and India pick up.
DRL has cash flow hedges over the next 18 months in the form of derivatives and loans to
the tune of US$638 mn, largely hedged in the range of 47-48. In addition, it has balance
sheet hedges of US$425 mn. The MTM losses on account of cash flow hedges in balance
sheet are US$85 mn on December 31, 2011; the corresponding amount at end-Jan 2012
is much lower at US$29 mn.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Dr Reddy's Laboratories (DRRD)
Pharmaceuticals
High FTF sales lead to outperformance. Higher FTF sales led to outperformance in
this quarter; however, base business performance was disappointing due to no qoq
pick-up in US, flat sales in Russia yoy and significant increase in SG&A costs, in line with
base business sales growth. We expect muted base business EPS growth in FY2012E
due to (1) flat margin, (2) pick-up in tax rate and (3) higher interest costs. However, we
expect core EPS growth at 25% in FY2013E. We value DRL at (1) 20X base business EPS
of Rs86 (down 4% due to higher tax rate) and (2) Rs21 from limited competition in US
launches. Downgrade to REDUCE (was ADD), TP at Rs1,740 (was Rs1,800).
Sales at Rs27.7 bn was up 46% yoy, 3% higher than our estimates due to higher FTF sales
Reported sales grew 46% yoy to Rs27.7 bn, 3% higher than our estimates with generics segment
sales beating our estimates due to higher FTF sales in US while the PSAI segment was 9% lower
than our estimates. The main beat came due to US revenues on account of higher FTF sales of
US$99 mn, versus our estimate of US$35 mn; however, base business revenues in US were flat
qoq at US$137 mn, lower than our estimates as we had built in a sequential increase of US$8 mn.
Excluding these FTF sales, sales growth was at 22.5%, lower than our estimate of 30% due to
poor sales growth in US and Russia. (1) India finished dosage grew poorly for the fourth quarter in
a row, although sales growth has been picking up qoq from single-digit, reaching 11% this
quarter, in line with our estimates, (2) Russia disappointed as it was down US$10 mn qoq in what
is seasonally a strong quarter, to US$54 mn, flat yoy due to (a) late onset of winter and (b)
pullback of sales in order to protect receivables. However, 4QFY12E sales growth is expected to
remain strong, (3) Germany grew yoy in Rupee terms for the first time in FY2012; however, was
flat yoy in Euro terms while (4) RoW sales grew 34% yoy, 7% higher than our estimates, due to
strong sales in South Africa and Venezuela (main RoW market).
EBITDA margin at 32%, versus our estimate of 26%
EBITDA excluding forex income and other income was at Rs8.8 bn or 32% of sales, 28% higher
than our estimates due to higher proportion of high-margin sales from FTF product - Olanzapine in
US. Excluding this sales, we estimate base business EBITDA margin at 22.8%, up 100 bps qoq and
70 bps higher than our estimates due to only 4% sequential increase in R&D costs. However, base
business gross margin was flat qoq due to lower proportion of sales from high-margin Russia.
SG&A costs excluding depreciation/amortization were up 20% yoy, in line with our estimates.
Lower interest costs, down qoq, and forex income of Rs285 mn resulted in PBT being 44% higher
than our estimates. However, tax rate at 34% was much higher than our estimate of 20% due to
higher sales form US resulting in reported PAT being 19% higher than our estimates
We increase our FY2012E PAT by 10% due to higher FTF sales in 3QFY12,
FY2013E PAT remains unchanged
We factor in base business sales growth of 21% in FY2012E, same as that reported in
9MFY12. We estimate base business margin at 22.3% in FY2012E versus 21.8% reported in
9MFY12. While reported PAT is up 40% in 9MFY12, excluding FTF sales in 3QFY12, PAT is
up 4% in 9MFY12; we accordingly factor a 5% increase in base business EPS in FY2012E.
However, excluding forex gain of Rs594 mn in 9MFY12 and forex loss of Rs319 mn in
9MFY11, PAT is down 8% yoy in 9MFY12.
Key takeaways from conference call
Gross margin in generics business was at 66% versus 63% in 2QFY12 despite presence of
FTF sales this quarter as proportion of high-margin sales from Russia fell to 10% from 12-
13% in 1HFY12.
Despite limited pick-up in R&D costs in 9MFY12, DRL expects R&D costs at 7-7.5% in
FY2013E.
Market share in Arixtra is at 18% (overall market) although DRL is participating only in
retail market currently. Production bottlenecks remain and are expected to be sorted out
in another three months post which DRL will launch it in the hospital market which
accounts for majority of Arixtra sales.
DRL expects US$100 mn in sales from its biosimilars portfolio in emerging markets
including India in 3-4 years from now from US$30 mn currently. DRL is in the process of
registering Rituximab in several EMs currently.
US OTC sales are US$100 mn in 9MFY12, with Allegra D 24 OTC contributing
insignificantly. By 4QFY13E, it expects to clock an annualized sales run-rate of US$200
mn implying it expects quarterly run-rate to shoot up to US$50 mn from US$33 mn
currently. We estimate OTC sales at US$170 mn in FY2013E from US$133 mn in FY2012E.
SG&A spend excluding amortization/depreciation was up 20% yoy in 3QFY12 and up
26% yoy in 9MFY12 compared to base business sales growth of around 20%. However,
in percentage terms, SG&A cost is expected to come down slightly as sales from Russia
and India pick up.
DRL has cash flow hedges over the next 18 months in the form of derivatives and loans to
the tune of US$638 mn, largely hedged in the range of 47-48. In addition, it has balance
sheet hedges of US$425 mn. The MTM losses on account of cash flow hedges in balance
sheet are US$85 mn on December 31, 2011; the corresponding amount at end-Jan 2012
is much lower at US$29 mn.
No comments:
Post a Comment