Dolat Capital Market is bullish on Dr Reddy’s Laboratories has recommended buy rating on the stock with a target price of Rs 5200 in its research report dated January 31, 2021.
Broker Research
February 09, 2021 / 11:48 PM IST
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Dolat Capital Market’s research report on Dr Reddy’s Laboratories
Dr Reddy’s reported a decent 3Q with strong performance in India (Wockhardt portfolio integration and COVID products) and EU (new launches). However, lower export incentive, higher price erosion, freight costs impacted gross margins (53.8% in 3Q vs 54.9% in 1H), in line with estimates. Adjusting for the impairment charge of Rs5.9bn for intangibles, EBITDA margins at 24% was lower vs our expectation of 26%. This led to lower than expected PAT of Rs6.2bn, (vs our estimate of Rs7.6bn). Sequentially US was muted led by price erosion in key products, COVID related slowdown in the US towards end of Q3 resulted in weaker gross and EBITDA margins. With Wockhart’s portfolio fully integrated, we expect promotional and marketing costs to inch up. This shall lead to pressure in EBITDA margins, in line with expectations. Management guides for an aspirational EBITDA margin of 25% in the near term.
Outlook
We continue to like Dr Reddy’s for its de-risked strategy as it broadens focus on key non-US markets like India, China, Russia, global injectables and API business. We value Dr Reddy’s at 24x FY23 EPS of Rs216.5. Post the recent correction, upgrade to BUY.
For all recommendations report, click here
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