Dr.Reddy's Laboratories Ltd (NSE:DRREDDY) (BSE:500124)

Dr.Reddy's Laboratories Ltd is an India-based integrated global pharmaceutical company that provides medicines. The Company derives its revenue from the sale of finished dosage forms, active pharmaceutical ingredients and intermediates, development and manufacturing services provided to pharmaceutical and biotechnology companies, and license fees from marketing authorizations for its proprietary products. Its presence in science and technology ranges from synthetic organic chemistry, formulation development, biologics development and small molecule based drug discovery. The Company has three reportable segments Global Generics, Pharmaceutical Services and Active Ingredients (PSAI) and Proprietary Products.

Official website: www.drreddys.com

For 4QFY2015, Dr Reddy’s Laboratories (DRL) posted numbers below our expectations. On the top-line front, the company posted a growth of 11.2% yoy to Rs3,870cr V/s an expected Rs4,052cr expected, with global generics posting a growth of 13.0% and PSAI registering a yoy growth of 12.0%. On the operating front, the EBITDA margin came in at 21.0% (V/s 23.2% expected) V/s 21.3% in 4QFY2014. The dip in the EBDITA margin came on back of a 29% yoy rise in R&D expenses, which came in at 13.3% of sales V/s 11.4% of sales in 4QFY2014. The PAT came in at Rs519cr (V/s Rs550cr expected), ie a yoy growth of 7.7%. We recommend a accumulate rating on the stock with a price target of Rs3,963. Results marginally lower than expectations: For 4QFY2015, DRL posted numbers below our expectations. On the top-line front, the company posted a growth of 11.2% yoy to Rs3,870cr V/s an expected Rs4,052cr expected, with global generics posting a growth of 13.0% and PSAI registering a yoy growth of 12.0%. The company’s key markets like US, Europe and India, along with ROW, posted a yoy growth of 15%, 32%, 16% and 77%, respectively. Russia & CIS posted a dip in sales of 27%, mainly on back of the currency impact. For the year the region posted an 11% yoy dip in revenues, while on the same currency the region posted a growth of 13.0%. On the operating front, the EBITDA margin came in at 21.0% (V/s 23.2% expected) V/s 21.3% in 4QFY2014. The dip in the EBDITA came on back of 29% yoy rise in R&D expenses, which came in at 13.3% of sales V/s 11.4% of sales in 4QFY2014. The PAT for the quarter came in at Rs519cr (V/s Rs550cr expected), ie a yoy growth of 7.7%. Outlook and valuation: We expect net sales to grow at a CAGR of 17.0% to Rs20,296cr and adjusted EPS to record a 17.6% CAGR to Rs180.1 over FY2015-17E. We recommend a accumulate rating on the stock.

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