ADVERTISEMENT

Brokerages Downgrade Dr Reddy’s After Weak First Quarter

Dr. Reddy’s Labs sees upto x% downgrades post 75% slump in Q1FY17 profit

Saumen Chakraborty, President and Chief Financial Officer of Dr. Reddy´s Laboratories Ltd., looks on at a news conference in Hyderabad (Photographer: Racha Ramesh/Bloomberg News)
Saumen Chakraborty, President and Chief Financial Officer of Dr. Reddy´s Laboratories Ltd., looks on at a news conference in Hyderabad (Photographer: Racha Ramesh/Bloomberg News)

Dr Reddy’s Laboratories Ltd. is the biggest loser on the NSE Nifty 50 Index today, after the company reported June quarter earnings on Tuesday, that fell short of analyst estimates.



Brokerage firms like Jefferies, Macquarie and Credit Suisse have downgraded Dr Reddy’s by one notch, while others like Goldman Sachs, Bank of America Merrill Lynch and Citi have cut their price targets by between 1.4 to 7.2 percent. Jefferies, Deutsche Bank, Citi and Bank of America Merrill Lynch have also cut their earnings estimates.

Here’s a snapshot of what top brokerages had to say in their earnings notes.

Jefferies

  • Downgrades to ‘underperform’ from ‘hold’.
  • Lowers price target to Rs 2,850 per share from Rs 3,000.
  • Says recovery still sometime away.
  • Expects earnings to remain flat over next two years.
  • Believes that valuations at 22 times financial year 2017-18 price to earnings are expensive.

Deutsche Bank

  • Re-iterates ‘sell’ rating.
  • Maintains price target at Rs 2,676 per share.
  • Cuts earnings estimates by 11.6 percent for current financial year to factor in the massive miss in Q1
  • Also cites increased competition in base business, and limited visibility on new product launches in the U.S.
At the current market price, the stock offers limited margin of safety.  
Deutsche Bank’s Earnings Note 

Goldman Sachs

  • Maintains ‘neutral’ rating.
  • Lowers price target to Rs 2,970 per share from Rs 3,200.
  • Says near-term outlook subdued.
  • Lowers earnings expectations by up to 29 percent to factor in a lower base for North American generics and more competition in the base injectables portfolio.
  • Says current valuation of 20.7 times expected enterprise value to earnings before interest, taxes, depreciation and amortisation for 2017 is hard to sustain given the softer near-term growth/return profile.

JP Morgan

  • Maintains ‘overweight’ rating.
  • Lowers price target to Rs 3,550 per share from Rs 3,600.
  • Notes that remediation of the facilities under warning letter is close to completion.
  • Says potential successful re-inspection over the next few quarters could be a sentiment positive.
  • Says the pick-up in U.S. revenue trends from approvals and launches will be a key trigger for the stock.
  • Highlights comparitively lower price to earnings. Dr Reddy’s trades at FY18E P/E of 20 times, while Sun Pharma trades at 22 times and Lupin trades at 24 times