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The Right Prescription…!
Dr. Reddy’s Laboratories (DRL) continues to build upon its generics capability on selective niche products and
biosimilars. The company’s key strength lays in its complex chemistry skills supported by a captive mine of
APIs, making it a dominant player in the global generics market. DRL is among the biggest beneficiaries of the
patent cliff in US. Key launches (Geodon, Clarinex, Seroquel) with limited competition shall add fuel to the base
business growth momentum. We anticipate growth trajectory in Russia (17% CAGR over FY11-14E) to sustain
mainly led by increasing contribution from OTC’s and new launches. DRL has gained traction in biosimilars in
emerging markets and is gearing itself for the next wave of opportunity in the regulated markets (2014E onwards).
Investment Rationale
Riding the US generic opportunity from the front
We anticipate US generics segment (36% of sales) to be the key growth driver
in the near future. DRL ranks among the top-three in market share for 24
prescription products. It has cornered 20% market share in some of the key
generic launches over last three years – g-Olanzapine ODT (AG + 3 players(p)),
g-Lansoprazole (3p), g-tacrolimus (4p). We anticipate similar reflections in other
FTF opportunities – Geodon and Clarinex – which collectively cater to USD 1.6bn
of innovator sales. Besides, it will participate in quiet a few other opportunities -
Plavix, Seroquel, Lipitor and Lexapro over the next 12 months. This offers higher
revenue visibility for DRL from the US market. We estimate US sales to peak off
from USD 875mn in FY13E and settle at USD 855mn in FY14E.
Cohesive approach in emerging markets ensures smooth growth
DRL has entered into notable alliances and partnerships with GSK, Cipla and
Vitabiotics. We expect revenue contribution to increase from this segment going
forward (currently 15%), led by new launches and market share gains in some
of the key markets – India, CIS in particular while incremental tie-up based
revenues shall add to revenue growth.
Preparing for the next-big-thing: Biosimilars
The much discussed patent-cliff will phase out after FY14 and will be succeeded
by a wave of generic opportunity in the Biosimilars space. DRL has already
launched three products – Reditux, Cresp, and PeGrafeel – in 12 countries and
is constantly working towards expanding its product offerings. The company is
well positioned to benefit from the opening up of the biosimilar entry in the US.
Valuation
DRL leverages on its chemistry skills to identify and capitalize on niche
opportunities with limited competition. The company has built significant API
capabilities that support its fast growing generic formulations business. Notably,
dependence on Betapharm has reduced significantly (14% of sales), and is
unlikely to be a further drag on overall financials. At CMP, the stock trades at
19.4x FY12E & 17.8x FY13E earnings. We initiate coverage on Dr. Reddy’s with
Accumulate recommendation and a target price of ` 1912 (20x to FY14E EPS).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The Right Prescription…!
Dr. Reddy’s Laboratories (DRL) continues to build upon its generics capability on selective niche products and
biosimilars. The company’s key strength lays in its complex chemistry skills supported by a captive mine of
APIs, making it a dominant player in the global generics market. DRL is among the biggest beneficiaries of the
patent cliff in US. Key launches (Geodon, Clarinex, Seroquel) with limited competition shall add fuel to the base
business growth momentum. We anticipate growth trajectory in Russia (17% CAGR over FY11-14E) to sustain
mainly led by increasing contribution from OTC’s and new launches. DRL has gained traction in biosimilars in
emerging markets and is gearing itself for the next wave of opportunity in the regulated markets (2014E onwards).
Investment Rationale
Riding the US generic opportunity from the front
We anticipate US generics segment (36% of sales) to be the key growth driver
in the near future. DRL ranks among the top-three in market share for 24
prescription products. It has cornered 20% market share in some of the key
generic launches over last three years – g-Olanzapine ODT (AG + 3 players(p)),
g-Lansoprazole (3p), g-tacrolimus (4p). We anticipate similar reflections in other
FTF opportunities – Geodon and Clarinex – which collectively cater to USD 1.6bn
of innovator sales. Besides, it will participate in quiet a few other opportunities -
Plavix, Seroquel, Lipitor and Lexapro over the next 12 months. This offers higher
revenue visibility for DRL from the US market. We estimate US sales to peak off
from USD 875mn in FY13E and settle at USD 855mn in FY14E.
Cohesive approach in emerging markets ensures smooth growth
DRL has entered into notable alliances and partnerships with GSK, Cipla and
Vitabiotics. We expect revenue contribution to increase from this segment going
forward (currently 15%), led by new launches and market share gains in some
of the key markets – India, CIS in particular while incremental tie-up based
revenues shall add to revenue growth.
Preparing for the next-big-thing: Biosimilars
The much discussed patent-cliff will phase out after FY14 and will be succeeded
by a wave of generic opportunity in the Biosimilars space. DRL has already
launched three products – Reditux, Cresp, and PeGrafeel – in 12 countries and
is constantly working towards expanding its product offerings. The company is
well positioned to benefit from the opening up of the biosimilar entry in the US.
Valuation
DRL leverages on its chemistry skills to identify and capitalize on niche
opportunities with limited competition. The company has built significant API
capabilities that support its fast growing generic formulations business. Notably,
dependence on Betapharm has reduced significantly (14% of sales), and is
unlikely to be a further drag on overall financials. At CMP, the stock trades at
19.4x FY12E & 17.8x FY13E earnings. We initiate coverage on Dr. Reddy’s with
Accumulate recommendation and a target price of ` 1912 (20x to FY14E EPS).
Excellent blog very nice and unique information related to Dr. Reddy’s Laboratories. Thanks for sharing this information.
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