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Dr. Reddy’s Lab
Attractive Para-IV pipeline
Mr. Kedar Upadhye – Senior Director, Finance & Investor Relations and
Mr. Raghvender R – Investor Relations and Corporate Planning shared
their outlook on the industry and the company
Key Highlights
§ DRL has been witnessing slower growth in the Indian market due to controversy
related to one of its key brand in pain management i.e. Nise (Rs750mn brand). The
company is correcting its field force deployment across divisions in order to address
low performing divisions. Management expects its domestic business to grow
closer to industry rate in H2FY12
§ Regarding the likely impact from the proposed drug price control policy – there are
40 brands which would get directly impacted if the policy getting implemented.
However, exact quantum of sales impacted was not ascertained.
§ Russia & CIS which contributes 15%, to grow by 18-20% on back of significant
volume growth in 20 key brands
§ On the API side – company is expecting increased traction led by forward buying of
APIs by the customers as the products are set to loose patent protection in US. The
company is targeting 15% growth over the next 2-3 years from APIs
§ North American business, to witness strong growth due to new product launches
and increase in MS of existing products (Tacrolimus MS 28%, Lansoprazole MS
14%, Omeprazole Rx MS 16%, Finasteride MS 15%)
o Already launched 9 new products including 4 SKU’s from its Bristol’s penicillin
facility acquired from GSK in Sept’11, upsides may come in H2FY12
o Key Para – IV’s opportunities -
– Olanzapine (20mg) – Market size of US$900 mn, launched on Oct 25th,
2011, under 180-days unshared exclusivity. MS ramp-up has been slower
– Olanzapine ODT – Market size of US$80mn, launch to be under 180-days
exclusivity with 2 other players
– Ziprasidone – Market Size US$800m, expected in Mar 12’ (Shared with
two other companies). But the launch can be delayed by 6months, if
USFDA grants PED to innovator
– Fondaparinux – Market Size US$340mn, already launched in Jul 2011.
Apotex is AG. DRL has achieved 10% MS in US till date and has plans to
enter the hospital segment withing the next few quarters. The company
does not expect any competition over the next 2-3 years
– Clopidogrel – Market Size US$6bn, expected launch Sept 2012. DRL is
confident of getting an edge over others as it has backward integration
Valuation
We expect Dr. Reddy to report 17%% revenue growth in FY12E and 7% growth in
FY13E. We expect EBIDTA margins to move from 22.4% in FY11 to 22.8% in FY12 and
23.5%% in FY13. Earnings will grow by 12% CAGR over FY11-13E. We maintain our
target price on the stock to Rs1604 (20x base business earnings of Rs77 + NPV of
Rs64 from Para IVs) with a Hold rating. At CMP, the stock is trading at 19x FY12E and
17x FY13E earnings
