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Dr. Reddy's Laboratories 2QFY2013 performance highlights and results update

Contributed by Angel Broking

Dr. Reddy's Laboratories (DRL) reported a just in line top-line and bottom-line performance for 2QFY2013. The company's net sales increased by 27.0% yoy, led by a 25.0% yoy and 33% yoy growth across the global generics and proprietary products businesses, respectively. We recommend Accumulate on the stock.

Results in line with expectations: DRL reported net sales of Rs.2,881 cr for 2QFY2013, registering a 27.0% yoy growth, which was in line with our estimate of Rs.2,800cr. The US and ROW formulations were the key growth drivers for the company, registering a strong growth of 47.0% yoy and 50.0% yoy, respectively. The domestic market reported a strong growth of 12.0% yoy. On the positive side the PSAI segment posted a robust growth of 33.0% yoy during the quarter. The companyRs.s EBIT margin expanded by 365bp yoy to 19.2%, resulting in adjusted net profit growing by 76.8% yoy to Rs.494cr during the quarter.

Outlook and valuation: DRL has reinforced its earlier revenue guidance of US$2.7bn by FY2013E with RoCE of 25%. We expect net sales to report a 9.8% CAGR to Rs.11,662cr and adjusted EPS to record a 2.3% CAGR to Rs.92.9 over FY2012-14E. We maintain our Accumulate rating on the stock with a target price of Rs.1,859.