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Muted quarter
Both US generics and branded exports grew fairly well in 1QFY12
while domestic growth disappointed again. The management guides
for 2H recovery in the latter. We expect earnings growth to pick up
with ramp up in market shares in key products (Allegra, Arixtra
generics) in the US market. Dr Reddy’s trades at attractive valuations
on reported earnings in comparison to the peer group. Maintain BUY.
US generics drive revenues
q Revenues from North America grew 48% YoY for the quarter helped by market
share gain in Prevacid, Prilosec OTC and Allegra OTC.
q The company has locked five customers for Allegra OTC. This should also help
ramp up in Allegra D24 OTC when launched.
q Recent Arixtra and Allegra D24 OTC approvals provide further visibility to the US
growth though their ramp up is likely to be gradual over 2-4QFY12. In Arixtra, the
company will start targeting retail market (40% of sales) and later move to
hospital segment. DEA approval is awaited in case of Allegra D24 OTC.
Further triggers over coming months
q We expect earning upgrades on back of Augmentin authorised generic and
Zyprexa launches.
q We expect strong QoQ pick up in profit growth over the coming quarters.
Except India, branded formulations growth sustains
q India formulations disappointed again with growth of 6% YoY way below market
average. This is despite strong growth in biosimilar portfolio (69% YoY). The
company introduced 12 products during 1QFY12. The management tentatively
guided for 2H recovery in domestic business.
q Branded export formulations grew 15.4% YoY led by strong performance in Russia
(OTC portfolio representing 30% of business grew strongly). Currency devaluation
impacted growth in some branded markets (Venezuela).
q Increase in SG&A expenditure led to lower than expected operating profit growth.
Valuations reasonable
q Dr Reddy’s trades at reasonable valuations in comparison to some of the other
large cap pharma names and with a number of niche prospects going forward
valuations on reported basis look attractive.
q We expect 30%+ reported profit growth over FY11-13CL. Major opportunities like
Zyprexa and Geodon provide substantial uptick to FY12/13 profits.
q We revise our estimates to include Arixtra generic launch and Bristol facility
contribution. We have also increased our (SG&A and R&D) cost estimates.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Muted quarter
Both US generics and branded exports grew fairly well in 1QFY12
while domestic growth disappointed again. The management guides
for 2H recovery in the latter. We expect earnings growth to pick up
with ramp up in market shares in key products (Allegra, Arixtra
generics) in the US market. Dr Reddy’s trades at attractive valuations
on reported earnings in comparison to the peer group. Maintain BUY.
US generics drive revenues
q Revenues from North America grew 48% YoY for the quarter helped by market
share gain in Prevacid, Prilosec OTC and Allegra OTC.
q The company has locked five customers for Allegra OTC. This should also help
ramp up in Allegra D24 OTC when launched.
q Recent Arixtra and Allegra D24 OTC approvals provide further visibility to the US
growth though their ramp up is likely to be gradual over 2-4QFY12. In Arixtra, the
company will start targeting retail market (40% of sales) and later move to
hospital segment. DEA approval is awaited in case of Allegra D24 OTC.
Further triggers over coming months
q We expect earning upgrades on back of Augmentin authorised generic and
Zyprexa launches.
q We expect strong QoQ pick up in profit growth over the coming quarters.
Except India, branded formulations growth sustains
q India formulations disappointed again with growth of 6% YoY way below market
average. This is despite strong growth in biosimilar portfolio (69% YoY). The
company introduced 12 products during 1QFY12. The management tentatively
guided for 2H recovery in domestic business.
q Branded export formulations grew 15.4% YoY led by strong performance in Russia
(OTC portfolio representing 30% of business grew strongly). Currency devaluation
impacted growth in some branded markets (Venezuela).
q Increase in SG&A expenditure led to lower than expected operating profit growth.
Valuations reasonable
q Dr Reddy’s trades at reasonable valuations in comparison to some of the other
large cap pharma names and with a number of niche prospects going forward
valuations on reported basis look attractive.
q We expect 30%+ reported profit growth over FY11-13CL. Major opportunities like
Zyprexa and Geodon provide substantial uptick to FY12/13 profits.
q We revise our estimates to include Arixtra generic launch and Bristol facility
contribution. We have also increased our (SG&A and R&D) cost estimates.
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