Motilal Oswal has given Buy recommendation for Dr Reddy’s Labs recommended buy rating on the stock with a target price of Rs 4800 in its researc with a target price of Rs. 4800 in its research report issued on May 20, 2022

Motilal Oswal’s research report on Dr Reddy’s Labs

Dr Reddy’s Labs (DRRD)’s 4QFY22 result was below our expectation due to increased price erosion in the US/EU segments, lower export benefits and higher inventory provisions. We cut our EPS estimates by 6%/8% for FY23/FY24 to factor in: a) divestment of brands in Russia/India, b) lower volume off-take and adverse price variance in key markets of the US/ROW and c) increased opex related to transportation. We value DRRD on an SOTP basis (at 24x 12M forward base business EPS of INR192 and add an NPV of INR210 for Revlimid) to arrive at our TP of INR4,800. We remain 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 2-3 years. Retain BUY.

Outlook

We value DRRD’s base business EPS of INR192 at a 12M forward P/E multiple of 24x and add INR210 per share of NPV from the g-Revlimid opportunity. Accordingly, we arrive at our TP of INR4,800 on a 12M forward earnings basis. Based on its limited-competition product pipeline in the US market, strong core therapies in DF, and the stock’s attractive valuation, we maintain our BUY rating.

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