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Dr Reddy’s Laboratories 4QFY2014 performance highlights and results update

May 15, 2014, Thursday, 05:52 GMT | 00:52 EST | 09:22 IST | 11:52 SGT
Contributed by Angel Broking


For 4QFY2014, Dr Reddy’s Laboratories (DRL) posted numbers lower than our expectations. Net sales came in at Rs.3,481cr V/s our expectation of Rs.3,881cr, posting a yoy growth of 4.2%. The main contributor to growth was global generics (+21% yoy), while the PSAI segment declined by 35% yoy. The GPM expanded by 794bp yoy to end the period at 62.9%. However, lower sales growth, and higher SG&A (which grew by 18.2%) and R&D (which grew by 71.3% yoy) expenses, led the OPM to come in flat yoy at 21.8% V/s an expected 24.4%. Also, the other income dipped by 80.8% yoy. The company posted a net profit of Rs.481.6cr (V/s an expected Rs.825cr), down 15.7% yoy. We maintain our Buy recommendation on the stock with a price target of Rs.3,399.

Results lower than expectations: DRL posted net sales of Rs.3,481cr V/s our expectation of Rs.3,881cr, posting a yoy growth of 4.2%. The main growth came from global generics (+21% yoy), while the PSAI segment declined by 35% yoy. The growth in global generics was triggered by the US and India which grew by 31% yoy and 18% yoy respectively. Russia and CIS, on the other hand, posted a flat yoy growth. The ROW market posted gains of 48% yoy. The GPM expanded by 794bp yoy to end the period at 62.9%. However, a lower sales growth, and higher SG&A (which grew by 18.2%) and R&D (which grew by 71.3% yoy) expenses, led the OPM to come in flat yoy at 21.8% (V/s an expected 24.4%). Also, the other income dipped by 80.8% yoy. The company posted a net profit of Rs.481.6cr (V/s an expected Rs.825cr), down 15.7% yoy.

Outlook and valuation: We expect net sales to grow at a CAGR of 16.7% to Rs.17,997cr and adjusted EPS to record a 15.8% CAGR to Rs.170.0 over FY2014-16. We recommend a Buy rating on the stock.