1QFY22 Result Review (Antique) Dr. Reddy’s Laboratories - FY2 | DM Stocks

1QFY22 Result Review (Antique)

Dr. Reddy’s Laboratories - FY22 starts on flat note, growth likely to be driven by key US Launches

Sales grew by 4% vs 4Q FY21 and grew by 11% vs 1Q FY21. The growth was mainly led by higher sales in India portfolio with higher COVID sales, followed by growth in RoW markets and Europe. DRRD also launched Sputnik V in India in May '21 and 1QFY22 was the first quarter of sales. Sputnik supplies will be ramped up from Aug/Sept'21 as DRRD is working with 6 CMOs for increasing local production. The EBITDA Margin declined 297 BPS vs 4QFY21 and 686 BPS vs 1Q FY21. EBITDA margins were impacted owing to lower gross margins due to price erosion, product mix and higher inventory related provisions along with higher export incentives in 1QFY21. Going forward we expect DRRD to improve its EBITDA Margin with key launches like gRevlimid, gNuvaRing, gKuvan 500mg and gCopaxone lined up for FY22 and FY23. We also expect Adj. PAT to grow 22% in FY22 & 33% in FY23. We resume coverage on the stock with a Hold rating with a target price of INR 5,356, we value the company at 23X P/E on FY23 EPS and assign NPV of INR 55 from the sale of Sputnik vaccines.

Valuations

We believe DRRD has strong pipeline of products for US market and we expect the US growth in FY23 to be around 22% and 14% in FY24. Management has reiterated on their EBITDA Margin guidance of 25% for FY22, with most of the cost control measures already in place we don't expect further improvement in cost structure. There could be some amount of cost savings from operational efficiencies in the form of digitization and automation initiatives and investments in digital initiatives. We resume coverage on the stock with Hold rating and target price of INR 5,356. We value the company at 23X P/E on FY23 EPS and assign NPV of INR 55 from the sale of Sputnik V vaccines.