Dr Reddy’s Laboratories’ America biz better than estimates: Ambit Capital

Published: January 31, 2015 12:18 AM

Dr Reddy’s Laboratories Q3 results were ahead of our estimates. Reported revenues of Rs 3,840 crore were...

Dr Reddy’s Laboratories Q3 results were ahead of our estimates. Reported revenues of Rs 3,840 crore were 9% ahead of our estimates led by the Russia and Venezuela businesses. Ebitda at Rs 980 crore was 19% ahead of our estimates largely due to lower-than-expected SG&A expenses.

However, the revenue-cost mismatch in other expenses was due to booking revenues at hedged rates in Russia but booking costs at spot rates over stated margins to an extent. We see credible risks to monetisation of key product opportunities like Copaxone and Nexium in the US.

The Srikakulam Form 483 also sounds incrementally more serious than we had previously perceived. The company expects to file two NDAs in the US by the FY15 end and high R&D spend incidcates the high quality of the ANDA pipeline (68 products pending approval). With monetisation of innovative opportunities lying in the near (Russia-Rituximab, complex injectables, derma and NDDS products in the US) and the medium term (US – PEG CSF, Rituximab), we believe the business is at an inflection point in its evolution. The North America business was 4% higher than our estimates at Rs 1,610 crore largely due to new product launches, sustained market share and favourable currency movements.

By Ambit Capital

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