1. Dr Reddy’s lab shares plunged 24% since January, Morgan Stanley says buy

Dr Reddy’s lab shares plunged 24% since January, Morgan Stanley says buy

Morgan Stanley has revised its target price on the shares of Dr Reddy's lab by more than 11.5%, as the research firm expects operating leverage to drive earnings recovery going forward.

By: | Published: September 21, 2017 2:05 PM
Dr Reddy’s Lab shares were trading at Rs 2,486.35; up by more than 7.5% in the afternoon. (Image: Reuters)

The pharma space in India has been one of the worst performing sectors in India in the year, due to the ongoing USFDA regulatory issues, which has caused the BSE Healthcare index to plunge more than 6% in the year so far. Dr Reddy’s Lab shares have underperformed the benchmark with the share prices diving by as much as 26% since January. Morgan Stanley has raised the target price on the stock to Rs 3,133 from the earlier target of Rs 2,798. The shares were trading at Rs 2,486.35; up by more than 7.5% in the afternoon. The shares surged mainly on the news that the Hyderabad-based drug firm has received an establishment inspection report (EIR) from the US Food and Drug Administration, for Formulation Srikakulam Plant (SEZ) unit II, Andhra Pradesh.

“This is to inform you that the audit of our Custom Pharmaceutical Services (CPS) facility, Technology Development Centre (TDC-1) at Miyapur, Hyderabad, Telangana, by the USFDA has been completed today with zero observation,” the company told exchanges. Morgan Stanley says that the risks in the company are taken into account, and remain largely known. The research and brokerage firm expects operating leverage to drive earnings recovery.

Edelweiss Securities has highlighted positives such as waning concerns, clear roadmap for the US and said that it sees a meaningful revival in the stock. CLSA says that with an improvement in US growth trajectory, risk-reward had turned favourable for the stock.

Earlier this month, the Nasdaq-listed Vivus Inc entered into a settlement with Dr Reddy’s Laboratories to resolve a long-pending patent litigation related to weight management capsules –Qsymia. The settlement permits Dr Reddy’s to begin selling a generic version of Qsymia from June 2025, or earlier under certain circumstances. In the event of an early launch, Vivus will receive a royalty on sales of the generic version of the drug. Qsymia (phentermine and topiramate extended-release) capsules are used to manage chronic obesity.

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