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Dr Reddy’s Labs net profit doubles in Q1: What should investors do?

Dr Reddy’s Laboratories failed to cheer Dalal Street despite reporting over a 100 per cent rise in the net profit for the quarter ended June 2022.

Share of the pharma major fell about 4 per cent in the first one hour of the trade on Friday. Experts see concerns over the US business, as well as, pressure on operating performance as key drags.

Despite near-term headwinds, most brokerage firms maintained their rating and target prices but slashed earnings per share (EPS) estimates for FY23-24.

Investors who are holding the stock can continue to hold for a possible target of Rs 5,000-5,300 on the higher side while the near-term headwinds will keep the stock volatile.

Dr Reddy’s Laboratories on Thursday reported a 108 per cent year-on-year (YoY) surge in consolidated net profit at Rs 1,187.60 crore for the June quarter compared with Rs 570.80 crore in the corresponding quarter last year.

Revenue for the quarter rose 6 per cent YoY to Rs 5,215.40 crore from Rs 4,919.40 crore in the same quarter last year.

Ebitda margin for the quarter came in at 34.1 per cent compared with 23.9 per cent in the March quarter and 20.7 per cent in the year-ago quarter. In value terms, Ebitda stood at Rs 1,778 crore against Rs 1,018.80 crore YoY.
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We have collated a list of recommendations from various brokerage post Q1 results:

Credit Suisse: Neutral | Target Rs 4050
Credit Suisse maintained its neutral rating on Dr Reddy’s Laboratories for a target price of Rs 4,050 for the quarter ended June.

Concern on high U.S. exposure is likely to play out, it said, adding that gRevlimid opportunity is not without risk.

The global investment bank slashed FY23/24/25E EPS by 9 per cent/9 per cent/1 per cent. The target price does not currently factor in a hit to gRevlimid NPV, it said. (source ET Now)

Sharekhan: Buy | Target Rs 5,000
Sharekhan maintained its buy rating on Dr Reddy’s Laboratories with a target price of Rs 5,000 post the June quarter results which translates into an upside of over 17 per cent from Rs 4,259 recorded on 28 July.

Dr Reddy’s Laboratories’ (DRL’s) Q1FY23 operating performance reflected high-cost pressures that dragged down adjusted operating margins. Results missed estimates and reflected several one-time items, the brokerage said.

Higher costs and elevated competitive pressures in the US are near-term challenges for DRL, but a strong new product pipeline and growth in base business could help tide over pricing pressures, to certain extent, said the note.

Elara Global: Buy | Target Rs 5,300
Elara Global maintained its buy rating on Dr Reddy’s Laboratories for a target price of Rs 5,300 post the June quarter results which translates into an upside of over 24 per cent from Rs 4,259 recorded on 28 July.

Competition in exclusive products has paused DRRD’s efforts to grow its US business, it said, adding that approvals for complex products from the Duvvada site should flow in FY23, which would improve the US run-rate.

“We cut our earnings by 4 per cent for FY23E and 3 per cent for FY24E. We reiterate Buy with a lower target of INR 5,300 on 21x (unchanged) FY24E P/E for the base business plus INR 225 for gRevlimid NPV,” said the note.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)

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