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Dr. Reddy’s Laboratories 3QFY2012 performance highlights and results update

Contributed by Angel Broking

Dr. Reddy’s Laboratories (DRL) reported higher-than-expected 3QFY2012 results. Net sales increased by 45.9% yoy, led by 57% yoy and 12% yoy growth across the global generics and proprietary products businesses, respectively. This aided an expansion of the operating margins and subsequently a higher net profit growth during the period. Management has reinforced its FY2013 guidance of US$2.7bn, with RoCE expected to come in at 25%. We maintain our Buy rating on the stock.

Results much above expectations: DRL reported net sales of Rs.2,769cr (Rs.1,899cr) for 3QFY2012, registering 45.9% yoy growth, which was higher than our estimate of Rs.2,301cr. The US market reported strong growth of 122% yoy, led by new product launches like olanzapine 20mg and higher market share in its key markets. Sales from Russia grew by 15.2% yoy during the quarter. The domestic market reported single-digit growth of 15.8% yoy.

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 13.3% CAGR to Rs.9,584cr and adjusted EPS to record a 22.7% CAGR to Rs.96.0 over FY2011-13E. We maintain our Buy recommendation on the stock with a revised target price of Rs.1,920.