Prabhudas Lilladher is bullish on Dr Reddys Laboratories and has recommended accumulate rating on the stock with a target of Rs 3023 in its July 31, 2014 research report.
"Dr Reddy's sales reached Rs35.2bn in Q1FY15, in line with our estimate of Rs36.2bn. Adjusted EBITDA margin was at 23%and PAT at Rs5.5bn in Q1FY15. Strong traction in key geographies such as US, India and ROW markets helped in 24% YoY growth in sales and EBITDA expansion of 140bps. Benefits of limited competition drugs helped in US generics growth, while volume expansion in focus brands drove 15% YoY growth in domestic formulations. Quality of sales growth in Russia (18% YoY in local currency) improved in Q1FY15 as OTC contributed 37% of sales with 27% YoY growth. Dr Reddy's launch of limited competition generics in 2014 continued to drive its sales and reached 43% YoY growth (in local currency) in Q1FY15. Product mix of sole generics in Vidaza and Dacogen, limited competition in Reclast and Aricept 23mg, higher demand and price rise in Depakote ER and Rx growth in Toprol XL and Geodon helped robust growth in US generic in Q1FY15. The company expects its injectable portfolio to continue to provide strong traction, while new generics, launched in 2014, would support growth in H2FY15E."
"Management expects mid‐teen growth in US generics, while overall sales growth is guided to be muted in FY15. We expect 8% growth in US sales due to growing competition in limited competition drugs in FY15. The company, however, could provide positive surprise to our earnings estimate with launch of Nexium and Copaxone in FY15E. With benefits of lower base, Dr Reddy's may achieve 12‐15% growth in domestic formulations in FY15. Strategy of focus geography will drive ROW sales at 37% growth in FY15. With 11% R&D expensess to build strong portfolio, we maintain 'Accumulate' and retain TP at Rs3,023," says Prabhudas Lilladher research report.
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