Axis Securities Picks This Large Cap Pharma Stock, Shares Likely To Surge, Recommends Buy

Axis Securities in its recent report on Dr Reddy's Laboratories Ltd (DRREDDY) placed a "Buy" on the stock for a decent gain of up to 11% with the given target price of Rs 4,750 apiece. With a market capitalisation of Rs 70,725.01 crore, this is a large-cap company that operates in the Pharmaceuticals sector.

Stock Outlook & Returns

The stock last traded at Rs 4,248.60 apiece on NSE, down 1.43% from its previous close. The stock on 31 December 2021 recorded its 52 week high at Rs 4,931.05 apiece, and on 4 March 2022 recorded it s52 week low at Rs 3,654 apiece, respectively.

The stock in terms of return didn't perform well in the 1 year, giving negative returns of 8.41%. However, in 3 months, it grew by 2.93%. It gave 48.26% positive returns in the past 3 years, whereas, it gave a maximum 80% returns in the past 5 years. 

Positive US Rx Trends

DRRD's TRx volumes, gRevlimid on an average, are up 1.5x MoM in Nov'22 and DRRD's market share reached ~23% in Nov'22. The innovator's volumes are down 24% MoM in Nov'22 whereas its market share stood at ~57%. DRRD's market share has marginally improved in the Suboxone market whereas volumes have remained flattish. DRRD's share in Vascepa has been hovering at ~18% with weekly volumes, up 2% this quarter. Vasostrict sales have taken a hit (-42% MoM in Nov'22; down 86% in Nov'22 vs. Jun'22) with more generic players (Amneal, Aurobindo) capturing higher market share and Endo holding on to its share. DRRD's average weekly volumes of Ciprodex are also down 25% QoQ, in line with the market. DRRD's market share has marginally declined in Ciprodex due to Sun Pharma entering the market.

Strategy to create long-term growth potential

Dr. Reddy's strategy "The Next and the New" includes Horizon 1 and 2 growth drivers comprising near-term and long-term goals. ii) Confident of double-digit revenue growth, 25% EBITDA margin and 25% RoCE aspiration. iii) Ex-US to grow faster; the company aims to be in the Top 5 in India; iv) Spends on NCEs/biosimilars are expected to accelerate and the company will not shy away from restructuring its portfolio; v) It intends to commercialize biosimilars on its own in the US and the EU; vi) Focus on backward integration, productivity and digitalisation.

R&D and Capex

The company's R&D is to inch up to 10-11% of sales. Currently, 3% is towards NCEs/biosimilars. It will ensure that no more than two biosimilars are in Phase 3. (Phase 1 costs USD$10 Mn; phase 3 is USD$ 40-70 Mn for most products). Annual Capex: Rs 1,500 Cr-Rs 2,000 Cr.

Outlook & Valuation

Dr Reddy is currently investing in various businesses that may provide growth in the long term. While high inflation and price erosion may reduce margins, the company is proactively building a global pipeline of biosimilars, developing NCE for Immuno-oncology, and building up a Neutraceuticals portfolio, vaccines, CDMO, and digital healthcare platforms.

Axis Securities said, "We recommend a BUY rating on the stock with a target price of Rs 4,750/share, implying an upside of 10% from the CMP."

About the company

Dr Reddy's Laboratories Ltd (DRREDDY) is a global pharmaceutical company committed to providing access to affordable and innovative medicines. DRREDDY offers a portfolio of products and services including APIs, Generics, Branded Generics, Biosimilars, and OTC. DRREDDY has major therapeutic areas of focus, which are gastrointestinal, cardiovascular, diabetology, oncology, pain management, and dermatology and major markets include - USA, India, Russia & CIS countries, China, Brazil and Europe.

Disclaimer

The stock has been picked from the brokerage report of Axis Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.