Reiterate ‘buy/SO’ on Reddy’s Lab with TP of Rs 5,730

By: |
November 27, 2020 8:31 AM

We hosted DR. Reddy’s at Edelweiss India e-Conference 2020,Asia Pacific.

PSAI- 2HFY21 unlikely to see accumulation of inventories, which was also visible in H1.

We hosted DR. Reddy’s at Edelweiss India e-Conference 2020,Asia Pacific. Highlights, Targeting 30-plus launches in FY21 in the US and a healthy launch pipeline for the next few years to offset price erosion. Seeing an overall recovery in the domestic market. Wockhardt integration is now complete; its field force will be leveraged for existing portfolio. Targeting 7–8 biosimilars with patent expires between 2026 and 2030; Pegfilgrastim filed and Rituximab in phase 3. Overall, we remain positive given, niche launches will drive double- digit growth; a solid domestic recovery; impressive cost control (SG&A control seen in last three years would continue); and niche products would improve gross margins.

Overall, we remain positive given, niche launches will drive double- digit growth; a solid domestic recovery; impressive cost control (SG&A control seen in last three years would continue); and niche products would improve gross margins.Top ten products in the US contribute 40–45% of US sales. Looking to widen the product basket from 140 products to 300 products over two-three years. gCopaxone- Filed responses in July and the file is under review. gNuvaring-The response will be submitted in CY20. Biosimilars – 15–20% of R&D goes into biosimilars. Two products are in advanced stages; targeting 7–8 products with patent expiries between 2026 and 2030. The firm is looking to capitalise on this opportunity via a partnership model. Aggressive launches in the EU by replicating US dossiers. Europe has a low base and can grow well hereon. Domestic, the focus remains on core therapy areas with some diversion in Nutraceuticals. The process with respect to Wockhardt integration is complete. While the PCPM is lower than the DRRD base business, the firm will leverage the field force for marketing the existing portfolio.

PSAI- 2HFY21 unlikely to see accumulation of inventories, which was also visible in H1. Expect a normal rate of growth.

The past four years have seen ~800bps margin expansion mainly due to opex control and focused R&D. Improving quality of launches implies gross margin could surprise. In light of its promising complex pipeline, impressive cost control, domestic recovery and ~30% earnings CAGR, DRRD remains on a strong growth trajectory over FY20– 22.We reiterate ‘BUY/SO’with a TPof Rs 5,730.

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