Dr Reddy's Shares Rise As Analysts Bet On New Launches In US, India To Drive Growth
Here’s what brokerages have to say about Dr. Reddy’s fourth-quarter results.
Shares of Dr. Reddy’s Laboratories Ltd. gained the most in two months as analysts bet on its new launches across key markets such as the U.S., China and India, and market share gains in existing products.
That comes after the drugmaker saw its net profit slump 83% year-on-year in the three months to March on account of one-time impairment losses, offsetting the benefit from higher sales across all major markets. Its India sales rose 15% over the year earlier and the U.S. business grew 14%, driving the overall revenue growth of 15% during the period.
GV Prasad, co-chairman and managing director at Dr. Reddy’s, said, “In spite of multiple external challenges, our core business performed well driven by an increase in market share, strong launches and productivity improvement.”
Shares of Dr. Reddy’s rose as much as 4.8% in early trade on Friday, the most since March 24. Of the 42 analysts tracking the drugmaker, 38 recommend a ‘buy’ and five suggest a ‘hold’, according to Bloomberg data. The average of the 12-month consensus price target implies an upside of 21.9%.
Here’s what brokerages have to say about Dr. Reddy’s Q4 results.
Morgan Stanley
Recommends ‘overweight’ with a target price of Rs 5,202 apiece, implying an upside of 32%.
Dr. Reddy’s continues to deliver granular growth across its businesses.
It continues to invest in complex generics, biosimilars and, now, new chemical entities for anti-cancer compounds.
It targets double-digit growth in India and emerging market businesses led by new launches and volume growth.
It expects double-digit price erosion in the U.S. to be offset by new launches, resulting in some growth.
gRevlimid (blood cancer) will be key launch for the U.S. in F23.
It expects to continue productivity gains and sustain current margins of 24% (target of 25%).
It plans Rs 1,500-1,700 crore in capex in FY23 for existing facility up-gradation and new injectable and biosimilar plants.
It continues to explore inorganic opportunities in all its core
markets, especially India.
For China market, it has filed for 11 products, received approval for three, and targets seven launches in FY23.
Spike in Russian sales in Q4 was driven by higher stocking, which should soon get normalised.
This valuation is supported by a strong core business, pipeline,
balance sheet and M&A outlook, versus product concentration risk and delays in key launches.
Upside Risks: Ramp up of gVascepa (used to reduce risk of heart attack), earlier-than-expected approval and launch of gCopaxone (to treat multiple sclerosis), gRevlimid monetisation, faster growth in Russia and EMs, biosimilar and injectable monetisation, Covid-19 vaccine penetration.
Downside risks: Loss of and/or delays in niche product opportunities, higher competitive intensity for key products in the U.S., more challenging FDA situation, slowdown led by Covid-19.
Nirmal Bang
Reiterates ‘buy’ with a target price of Rs 5,424 apiece, implying an upside of 38%.
Q4 FY22 earnings performance was above expectations, led by strong growth across geographies.
U.S. sales grew led by gVasostrict (indicated to increase blood pressure in adults) and gVascepa. The company has also received approval for gKuvan 500mg (to lower blood Phe levels), which should help it to continue the growth momentum in the U.S. gRevlimid launch is also expected anytime now in the U.S.
Pharmaceutical service and active ingredients business performance was weak and in line with the broader market trend.
There was a large one-off related to impairment of intangible assets in the U.S. (primarily R&D assets acquired /under development), which affected net profit.
Dr. Reddy’s has been facing double-digit pricing pressure in the North America business, which has been offset by double-digit
growth in new launches.
Pricing pressure in the U.S. business for oral solids is likely to continue.
The company plans to launch 20-23 products in FY23 in the U.S. market.
Less than 4% of revenue was contributed by Covid products in FY22.
Domestic market should grow in double-digits organically said the management. The company is looking at complementary bolt-on acquisitions with preference towards India.
Covid inventory write-off in Q4 FY22 was insignificant. At present, the company is holding a very small amount of Covid inventory.
Dr. Reddy’s current exposure to the Ukraine market is immaterial.
DRL has applied for 11 products and received approval for three in China. In FY23, seven products will be launched in China.
Dr. Reddy’s is shipping to Russia and business is running as usual. The management said none of its competitors have left the Russian market.
Motilal Oswal
Retains ‘buy’ with a target price of Rs 4,800 apiece, implying an upside of 22%.
Q4 FY22 result was below expectation due to increased price erosion in the U.S./Europe segments, lower export benefits and higher inventory provisions.
Cuts estimates to factor divestment of brands in Russia/India, lower volume offtake and adverse price variance in key markets of the U.S./rest of world, and increased operating expenses related to transportation.
Positive on the stock due to its superior execution across key markets supported by the healthy pace of launches and market share gains in existing products.
The controlled cost is likely to improve operating leverage and drive better profitability over the next two to three years.
Management remains confident of sustaining profitability in FY23 as well.
Dr. Reddy’s would sustain the launch pace with 20-25 ANDA launches in FY23.
Effective tax rate is expected to be 26% for FY23.
Dr. Reddy’s expects to grow in double digit year-on-year in the domestic formulations segment in FY23.