Buy This Large Cap Pharma Stock For 16% Potential Upside, Revenues Grew 9.4% YoY, Says ICICI Direct

ICICI Direct in its recent report published on 30th October has assigned a buy call on stock's Dr. Reddy's Laboratories Limited (DRL) for gains of up to 16% in 12 months with a target price of Rs 5,215 per share. Dr Reddy's Laboratories is a homegrown large-cap pharmaceutical company.

Dr Reddy's portfolio includes pharmaceutical generics, APIs, custom pharmaceutical services, biosimilar and complex formulations. It has 13 formulation facilities, nine API manufacturing facilities, one biologics facility and several R&D centres across the globe. According to the broker's report, the revenue breakup of the company for Q2FY23 is as follows: US (44%), India (19%), Russia and CIS (13%), Europe (7%), RoW (7%), PSAI (10%).

Stock Outlook & Returns

The current market price (CMP) of the stock is Rs 4,556.45 per share on NSE. Opened at Rs 4,459.95 per share, trading 2.16% up up compared to its previous close. Its 52 week low level is Rs 3,654 and the 52 week high level is Rs 4,931.05, respectively. It has a market cap of Rs 74,231.86 crore.

The shares surged 2.98% in the past 1 week. In the past 1 nad 3 months, the stock has given  4.46% and 4.69% positive returns, respectively. However, over the past 1 year, the shares has fallen, giving a 2.41% negative returns. It has given 60.11% positive returns in the past 3 months, and 82.22% positive returns in the past 5 years, respectively. The stock has reported decent returns on long term investments.

Q2FY23 Results

Revenues propelled by launch of gRevlimid in the US. Revenues grew 9.4% YoY to Rs 6331 crore, mainly driven by the US on the back of favourable currency impact and gRevlimid and other launches. EBITDA margins grew 649 bps YoY to 30%. Adjusted PAT increased 13.3% YoY to Rs 1100 crore.

ICICI Direct Maintains buy for Rs 5,215 target price

Dr Reddy's share price grew 1.6x in past three years. "We maintain BUY due to 1) ramp up across geographies on back of new launches, 2) strong FCF generation to be driven by gRevlimid and other niche launches and 3) calibrated cost approach based on better product mix. We value Dr Reddy's at Rs 5215 i.e. 25x FY24E EPS of Rs 202.4+ NPV of Rs 154 for gRevlimid," the brokerage has said.

Key triggers for future price performance

• US pipeline: In the near term, key launches in complex generics (guidance for 25 launches in FY23) is likely to weather persisting price erosion in US, along with additional impetus from gRevlimid in H2FY23. Structurally, 1) 40% of pipeline being injectable/sterile, 2) 25+ complex products and 3) select Biosimilars and complex generics bodes well for US market.
• Emerging Markets & India: New launches to offset price erosion and loss in Covid opportunities. Domestically, ramp-up of acquired assets and faster integration to increase base business.
• Easing of volatility in currency for Russia-CIS market and possible gains from inventory normalisation in H2FY23.
• Target to backward integrate 70% molecules to benefit gross margins in medium term. Immediate focus on cost rationalisation, on SG&A front and simultaneous launches across geographies.

Disclaimer

The stock has been picked from the brokerage report of ICICI Direct. 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 check with certified experts before making any investment decision.