Dr Reddy?s reported 4QFY11 adjusted net profit of R300 crore, up about 50% y-o-y after adjusting for forex gains and income from the sale of land, which exceeded our estimate of R289crore by about 4% and consensus by about 13%. Sales at R2000crore were up 23% y-o-y, largely in line with estimates, though the US surprised positively while India was weak.
Ebitda margins at 17.9% increased about 100bp on a y-o-y basis but were a tad lower than our estimate largely due to lower India sales and higher R&D expense (7.4% to sales).
US grew $25m sequentially on the back of a pickup in new launches including lansoprazole, tacrolimus, and most recently, Allegra D-24. The company filed 20 Andas in FY11 and plans to launch about 20 products in the US market in FY12, including generic olanzapine (FTF on 20mg strength), ziprasidone (shared exclusivity with Lupin), and fondaparinux. Generic Arixtra (fondaparinux) remains the key next catalyst, though its approval status remains pending.
Russia was up about 26% y-o-y on the back of high volume growth (about 32%) and new product introductions (seven new products, mostly in the OTC space). OTC represents about 25% of the portfolio now. Indian growth was muted at about 5% y-o-y, impacted by price actions across certain segments and is expected to bounce back in the next quarter. The PSAI segment grew about 13% in the quarter.
R&D expense was up 33% for FY11, with the quarter charge at 7.4% to sales. The capex number for FY11 was about R880crore and likely to continue in FY12. We are maintaining our Overweight rating on the stock given strong growth expectations from new launches in US.
However, we are building slightly higher R&D and other costs and cutting EPS estimates marginally (about 1% for FY12 and about 4% for FY13). We roll our valuation basis to March 2012 from December 2011. Our new target price of R2,080 is derived using 22x(remain unchanged) FY13E EPS estimate of R93.5 and adding R 25 for Para IV opportunities. The key risk remains delays in US approvals.
?HSBC