Dr Reddys Laboratories Ltd. (DRL)|Q2FY15 Result Update | Operationally weak quarter; however, outlook remains optimistic |We maintain BUY rating on the stock at price target of Rs3,453 :: IndiaNivesh

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->
Operationally weak quarter; however, outlook remains
optimistic
Though the adjusted PAT was in-line with our estimates, sales and operating profit
was below our estimates. The operational performance was affected by lower
than expected business in US and Russia market. However, higher finance income
and lower tax led PAT to come in-line with estimates. We maintain our estimates
for FY15E as well as FY16E. We believe this quarter to be an aberration. With
strong ANDA pipeline pending for approval in US market, new product launches
in domestic and Russia formulation market, increased R&D effort, Dr. Reddy’s
Laboratories is creating strong foundation for future growth. Also, the stock is
trading at comfortable valuation of 23.5x FY15E and 21.3x FY16E earnings. Hence
we maintain BUY rating on the stock with PT of Rs3,453 on the stocks.

Inferior performance in US and Russia market led to y-y contraction in adjusted
PAT for the quarter: Dr. Reddy’s Laboratories (DRRD IN) adjusted PAT came in at
Rs5.9bn, down 10% y-y, while up 6.5% q-q. This has been mainly due to muted
growth in US generics, which forms 40% of total sales and devaluation of Rouble,
which adversely impacted Russia sales. Though sales grew at 7% y-y, operating profit
declined by 8% y-y due to higher other expenses and R&D spent. Other expenses
increased by 10% y-y due to salary hikes, increase in manpower and higher marketing
spend. R&D spend increased by 37% y-y and formed 11.5% of net sales for the
quarter. This coupled with lower other income and higher tax compared to 2Q FY14
led to 10% y-y contraction in adjusted PAT. Though tax outgo increased by 51% y-y,
it formed 17% of PBT. Management has guided for tax rate of 19-20% for FY15.
Capital expenditure for the quarter was Rs2.3bn. DRRD had forex loss of Rs118mn
for the quarter.
US Generics sales grew at lowest y-y growth rate (in US$ terms) in past eight
quarters: US generics sales came in at US$231mn, up only 4.9% y-y and down 16%
q-q. There has been sharp reduction in y-y growth rate of US generics sales. This is
mainly due to high base of past year, channel consolidation and change in buying
pattern. Also, DRRD launched only one product which dampened the growth rate
for the quarter. Though the growth rate has been lower, DRRD has been able to
retain market share in key products like Decitabine, Azacitadine, Zoledronic acid,
Ziprasidone, Metoprolol and Divalproex ER. Recently DRRD launched g-Rapamune
(Sirolimus – market size US$203mn), which is limited competition product. DRRD
has 220 cumulative ANDA filing and 72 ANDAs pending for approval. Out of 72
pending approvals, 45 are para IVs and 11 are first-to-file (FTFs). DRRD has filed 11
ANDAs in H1FY15 and has guided for 15-18 filings for FY15.
Domestic formulation (DF) segment maintains the growth momentum: DF sales
came in at 4.8bn – highest ever quarterly sales. It grew by 14% y-y. The y-y growth
for the quarter was largely driven by volume and superior product mix. DRRD
launched two new products during the quarter. With more number of new launches
and increased traction in existing products, we expect DRRD to show better than
industry growth rate in 2H FY15.

LINK
http://www.indianivesh.in/Admin/Upload/635502568524930000_Dr%20Reddy_Q2FY15%20Result%20Update.pdf