Motilal Oswal has given Buy recommendation for Dr Reddy’s Labs recommended buy rating on the stock with a target price of Rs 5470 in its research re with a target price of Rs. 5470 in its research report issued on Oct 30, 2021

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

Dr. Reddy’s Labs’ (DRRD) 2QFY22 results came in ahead of our estimates, driven by a strong show in Russia, Rest of the World (RoW), Domestic Formulations (DF), and license fee for the sale of US and Canada rights for Elyxyb (celecoxib oral solution). US sales remained steady despite price erosion in the base business, while PSAI performance was below expectations. -We raise our EPS estimates by 4%/3% for FY22/23E to factor in a) faster growth in the Emerging Markets (EM), b) ramp-up in g-Vascepa, c) better prospects from China, and d) delay in Sputnik vaccine offtake due to commercial scale-up issues. We value DRRD’s base business EPS of INR210 at 12m forward P/E multiple of 25x and add INR210 per share of NPV from the g-Revlimid opportunity. Accordingly, we arrive at a price target of INR5,470 on a blended basis. We UPGRADE DRRD TO BUY based on a) limited competition products pipeline for the US market, b) superior execution in DF and other EMs, c) cost control-driven improvement in operating leverage, d) and the stock’s attractive valuation. COVID-related opportunities like Sputnik V in other countries (Ex-India) and Molnupiravir could act as potential triggers over the near-to-medium term.

Outlook

We value DRRD’s base business EPS of INR210 at 12m forward P/E multiple of 25x and add INR220 per share of NPV from the g-Revlimid opportunity. Accordingly, we arrive at price target of INR5,470 on a 12M forward earnings basis. We upgrade DRRD to BUY based on its niche products lined up for the US market, portfolio expansion/tapping newer regions in Europe/EMs, superior profitability, and the stock’s attractive valuation.

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