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Dr. Reddy’s Laboratories 3QFY2013 performance highlights and results update

Contributed by Angel Broking

Dr. Reddy’s Laboratories (DRL) reported more or less just-in 3QFY2013 top-line and bottom-line performance. The company’s net sales increased by 3.5% yoy (23% adjusted for the base effect). The growth came in on back of 24% yoy (adjusted) in the US and Emerging Markets. On the EBIT margins came in at 15.0% V/s expected 15.8%. Consequently the net profit came in at Rs.363cr, a dip of 29.1%, mostly in line with expectations of Rs.339cr. We recommend a neutral on the stock.

More or less results in line with expectations: DRL reported net sales of Rs.2,865cr for 3QFY2013, registering 23.0% yoy growth, which was a tad lower than our estimate of Rs.2,700cr. The U.S. and Emerging markets grew by 24% yoy (adjusted) were the key growth drivers for the company. The domestic market reported a strong growth of 12.0% yoy. On the positive side the PSAI segment posted a robust growth of 28.0% yoy during the quarter. The company’s EBIT margin came in at 15.0% V/s expected 15.8% and contracting by 11.7%, leading to a dip of 29.1% to Rs.363cr 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 neutral on the stock.