Dr Reddys' Labs - Q1 FY22 Result Report - YES Securities

(Rating: ADD, TP: Rs5,350, Upside: 10%)

US ramp up key to margin rebound; ADD

- Dr Reddys' management exuded optimism on regaining earlier (~25%) margin trajectory; it emphasized that Q1 represented a timing mismatch with price erosion not offset by big launches which were towards end of quarter.

- Decent opportunities like Vascepa, Ertapenem would drive growth while gross margin also rebounds from one-off in Q1.

- As US & API business revive, it can infuse confidence on margin climb back towards 23-25% range; on the contrary, though low probability and not factored by us, lack of meaningful ramp up in US sales would be a significant drag.

- For now, assume US & margin performance should normalize; accordingly, we project a moderate 6-7% cut to FY22/23 estimates, translating into a minor 4% reduction in TP to Rs5,350 at unchanged 26x PE on FY23 EPS.

- Key risk - 1 more quarter of US disappointment can make it difficult to visualize margin reaching the guided prior trajectory, opening further downside in the stock.

Shares of DR.REDDY'S LABORATORIES LTD. was last trading in BSE at Rs. 4730.2 as compared to the previous close of Rs. 4844.35. The total number of shares traded during the day was 179933 in over 26940 trades.

The stock hit an intraday high of Rs. 4875.85 and intraday low of 4666.95. The net turnover during the day was Rs. 854308457.

Source : Equity Bulls

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