Dr Reddy’s Q3FY23 results were in-line with our estimates. Strong performance in North America and Russia were the key highlights for Q3. Core business performance remains steady. Our estimates for FY23-25E are largely unchanged, and we maintain our Buy rating with an unchanged TP of `4,965. Stock trades at attractive valuations of 20x FY25 base business EPS and judicious use of gRevlimid cash flows can drive a re-rating for the base business multiples.
For 3QFY23, Dr Reddy’s revenue grew 27% y-o-y to `6,770 crore, Ebitda grew 70% y-o-y to `2,040 crore and PAT grew 76% y-o-y to `1,250 crore. These were in-line with our estimate. Excluding the impact of gRevlimid, we estimate base business revenue grew 9% y-o-y and Ebitda grew 13% y-o-y.
North America revenue of $372m was driven by launch of gRevlimid. We estimate flat base business growth q-o-q as gains from new launches would be offset by price erosion. Russia sales grew 47% y-o-y to `690 crore driven by new launches and traction in biosimilars. India sales grew 10% y-o-y to `1,120 crore. PSAI sales grew 7% y-o-y to `770 crore and the company is seeing signs of recovery.
Dr Reddy’s expects contribution of gRevlimid to be meaningful over the coming quarters. It expects US sales to grow in single digits even on the current base which has contribution from gRevlimid. Challenges faced by the PSAI business over the last eighteen months is getting resolved. Clinical trials for bRituxan has completed Phase 3 trials.
Dr Reddy’s is investing in branded markets of India and emerging markets which should help improve its core profitability. For the US, Dr Reddy’s has 94 ANDAs pending approval with the US FDA of which ~40% are injectable/sterile products, 25+ complex products across drug-device combos, peptides, long-acting Injectables etc. In addition, Dr Reddy’s is working on technology platforms like Particulate Systems, Microsphere & Liposomal, Peptides platform and a pipeline of biosimilar products which should help sustain growth beyond FY25.
Our estimates for FY23-25E remain largely unchanged post 3QFY23 results. Our target price of `4,965 (unchanged) is based on 20x FY25E EPS for the base business and NPV based value of `300 for gRevlimid. Stock trades at attractive valuations of 20x FY25 base business EPS and judicious use of gRevlimid cash flows can drive a re-rating for the base business multiples.
Dr.Reddy’s was founded in 1984 and is headquartered in Hyderabad. The company’s product offerings include generics, branded generics, OTC, API, and biologics.