What Brokerages Have To Say About Dr. Reddy’s Q1 Results

Analysts remained bullish on Dr. Reddy’s Laboratories Ltd. as the drugmaker reported higher sales in all key markets at a time India’s pharmaceutical market grew at its slowest pace in five years in the quarter ended June.

Dr. Reddy’s June quarter sales in India, Europe and other emerging markets jumped 15 percent, 19 percent and 10 percent year-on-year, respectively. Its net profit, too, beat estimates during the period, aided by higher other income.

That comes even as the company’s margins contracted. Also, its pharma services, active ingredients and proprietary products segments dragged down the revenue.

Here’s what brokerages have to say about Dr. Reddy’s Q1 Results 2019-20:

CLSA

• Maintains ‘Buy’ with a target price of Rs 3,330 apiece.
• On track to deliver on its realigned strategy.
• Improving traction in India and emerging markets.
• Fourth straight quarter of U.S. sales improvement.

UBS

• Maintains ‘Neutral’ with a target price of Rs 2,950 apiece.
• Q1 revenue and margin impacted by unusually weak pharma services and active ingredients segment.
• New products success and cost control key for earnings growth.

BofAML

• Maintains ‘Buy’ and hikes target price to Rs 3,052 from Rs 3,009 per share.
• Sharp sequential recovery despite significant miss in pharmaceuticals services and active ingredients business.
• Margin beat on lower cost despite impact of certain inventory provisioning.
• Strong balance sheet gives flexibility for inorganic growth.

SBICAP Securities

• Maintains ‘Hold’ with a target price of Rs 2,650 apiece.
• Operationally weak quarter but settlement income saved the day.
• Global generics business was up while pharma services and active ingredients and proprietary products businesses were down.
• Gross margin disappoints; key products seem delayed again.

BoB Capital Markets

• Upgrades to ‘Add’ from ‘Reduce’ on reasonable valuations, hikes target price to Rs 2,900 from Rs 2,800.
• Good scale-up in U.S. sales, adjusted Ebitda was in line.
• Management expects more than 30 launches in U.S. and cost savings in 2019-20.

Prabhudas Lilladher

• Upgrades to ‘Accumulate’ from ‘Hold’ but maintains target price at Rs 2,997 apiece.
• Dr. Reddy's Sales were in line while adjusted Ebitda and adjusted profit after tax missed estimates.
• Significantly lower pharma services and active ingredients sales, one-off inventory adjustment and price erosion in key generics led to the miss.
• Expects current growth to be sustainable with rich pipeline of injectables and biosimilars.

Emkay Global

• Maintains ‘Sell’ with a target price of Rs 2,580 apiece.
• Pharma services and active ingredients business dragged down performance.
• Gross margins, R&D spends fall short of guidance.
• Earnings highly dependent on three key molecules which could disappointment with higher competition and approval delays.

Investec

• Maintains ‘Sell’ with a target price of Rs 2,345 apiece.
• Multiple negative surprises despite the beat.
• Nuvaring delay highly likely.
• There could be further disappointments.

Watch the interaction with Dr. Reddy’s management here: