Dr Reddy’s Laboratories Ltd. | Q3FY15 Result Update | Operationally good quarter | Maintain BUY rating on the stock with revise PT of Rs3,819 ::IndiaNivesh

Please Share::

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

��

-->
Though the adjusted PAT of Dr. Reddy Laboratories (DRRD IN) was slightly below our expectation, the operating profit was much better than estimates. This has been mainly due to relatively better sales growth and improved operating margin. However, higher tax outgo led to adjusted PAT to come in line with our estimate. Though there are headwinds in terms of currency fluctuation in some of the markets, we believe that DRRD has been building strong foundation in terms of complex product pipeline in US market, and new product launches along with increased traction in existing products in domestic formulation. We maintain our estimates for FY15E and FY16E and introduceFY17 earnings in our model. We also roll forward our valuation FY17E EPS and revise our price target to Rs3,819 based on 23x FY17E EPS of Rs166. At CMP of Rs3,360, the stock is trading at confortable valuation of 23.5x FY16E EPS of Rs143 and 20.2x FY17E EPS of Rs166. Hence we maintain BUY rating on the stock. Operationally good quarter Source: IndiaNivesh Research Strong improvement in EBIT on sequential basis due to lower other expenses: Sales of DRRD grew by 8.8% y-y to Rs38.4bn, led by domestic formulation, ROW sales and PSAI sales. North America and Europe grew at moderate rate, while Russia sales contracted for the quarter on y-y basis. Though EBIT declined by 6.9% y-y to Rs7.4bn, it grew by 19.7% sequentially. As a result, EBIT margin improved 202 bps q-q to 19.3%. This has been mainly due to lower growth in SG&A expense. SG&A expense formed 27.6% of net sales compared to 29.7% sequentially, mainly due to Russia currency devaluation. The gross margin for global generics remained stable q-q, while gross margin PSAI segment dipped by 750bps q-q. R&D spend as % of sales increased by 280bps y-y and formed 11.2% of net sales for the quarter. The increase is in line with the guidance given by the company. Tax rate for the quarter was 31.6%, however, management has guided for tax rate of 21-22% on annual basis. During the quarter, DRRD has taken impairment charge Rs534mn on account of decline in recoverable amounts of certain product/ customer contracts related to intangible asset. DRRD had forex benefit of Rs604mn during the quarter. DRRD also had profit on sale of investment to the tune of Rs174mn. Adjusting for impairement, forex benefit and profit on sale of investment, DRRD’s PAT came in at Rs5.5bn. Capex during the quarter was Rs2.7bn. High base of past year led to moderate growth in US sales for the quarter: US generics sales growth continued to remain muted at 3.7% y-y to Rs16.8bn (US$274mn). This is largely due to high base of past year and lack of newer niche opportunities as was the case in Q3FY14. DRRD continued to show steady performance in limited competition products and increased market share in newer products. DRRD launched six new products during the quarter. With 2 ANDAs filed during the quarter, Cumulative ANDA stands pending for approval stands at 68, out of which 43 are Para IV and 13 to have First to File status. G-Nexium launch seems to have been delayed due to observations raised at its Srikakulam site. DRRD continue to make efforts for launching g-Nexium by responding on the observation raised as well as using alternate site for manufacturing. The launch is subject to satisfactory resolution of observation raised or regulatory approval for alternate site. Though DF sales growth rate took a pause in Q3FY15, DRRD maintains optimistic outlook: After robust performance for past two quarters, DF sales growth moderated a bit to 10.6% y-y for the quarter. DF sales came in at Rs4.3bn for the quarter.

LINK
http://www.indianivesh.in/Admin/Upload/635585536394797500_Dr%20Reddy_Q3FY15%20Result%20Update.pdf