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  1. Dr Reddy’s Lab shares fall over 8% on USFDA warning, should you buy?

Dr Reddy’s Lab shares fall over 8% on USFDA warning, should you buy?

The regulator said it had found several violations with regard to current good manufacturing practices (CGMP) at these plants.

By: | New Delhi | Updated: November 26, 2015 4:24 PM

 

Dr Reddy's Lab, Sensex, Nifty, BSE, NSE, stocks in focus

In the past one year, the share price of Dr Reddy’s Laboratories slid 3.85 per cent to Rs 3388.60 on November 24. Sensex fell 9.55 per cent during the same period. (Photo: PTI)

Dr Reddy’s share price slumped over 9 per cent intraday on Thursday after the United States Food and Drug Administration (USFDA) warned homegrown pharma major that if the company fails to take corrective actions at three of its manufacturing facilities-Srikakulam, Miryalaguda and Duvvada-it may lead to imposition of an import ban on these units.

The regulator said it had found several violations with regard to current good manufacturing practices (CGMP) at these plants.

The share price of Dr Reddy Laboratories were trading 6.04 per cent down at Rs 3,184.05 in the early trade (9.25 am). The share price of the company opened at Rs 3,049.75 and had touched a high and low of Rs 3,200 and Rs 3,049.75, respectively, in trade. The scrip fell as much as 9.99 per cent intraday so far.

Later, the scrip closed 8.21 per cent down at Rs 3,110.35. Sensex closed 0.71 per cent up at 25,958.63

Market analysts believe warning letter details are stringent in tone and scope. According to CLSA, the content of the warning letter for the three manufacturing sites for Dr Reddy’s is strongly worded and Dr Reddy’s response to the warning letter would be crucial, failing which there could be an adverse action (import alert) for these sites.

Sarabjit Kour Nangra, vice president research, Angel Broking said, “These issues will take some time to get resolved. However, we have already pruned the numbers for worst case scenario coming from these plants. We maintain our ‘Buy’ rating with a price target of Rs 3,933.”

According to Nomura, Dr Reddy’s shares currently trades at 21x FY16F and 18.7x FY17F estimates. The brokerage firm maintains ‘Buy’ rating on the stock with target price of Rs 4,919.

Meanwhile, Motilal Oswal downgraded Dr Reddy’s shares to ‘Neutral’ and believes the share price of the company can touch Rs 3,500. The brokerage house said, “We have cut our FY17/18E EPS by 11-14 per cent. The cut in EPS is attributed to higher remediation cost and supply disruptions required to take corrective actions.”

The promoters holding in the company stood at 25.51 per cent while institutions and non-institutions held 41.91 per cent and 32.58 per cent, respectively.

In the past one year, the share price of Dr Reddy’s Laboratories slid 3.85 per cent to Rs 3388.60 on November 24. Sensex fell 9.55 per cent during the same period.

(With inputs from Reuters)

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