Dr Reddy’s share price has jumped 9.5% in the last five days. The stock has rallied after the company last week reported a 76% on-year decline in consolidated net profit at Rs 88 crore, and a 15% on-year rise in consolidated revenues from operations to Rs 5,437 crore. Brokerages remain bullish on the stock and see up to 15% further upside going forward due to its superior execution across key markets supported by the healthy pace of launches and market share gains in existing products. “The controlled cost is likely to improve operating leverage and drive better profitability over the next 2-3 years,” said analysts at Motilal Oswal Financial Services. Dr Reddy’s shares were quoting at Rs 4,308, up 1.4% on BSE today.
Analysts at ICICI Securities expect Dr Reddy’s revenue and earnings CAGRs at 10.3% and 29.0%, respectively, over FY22-FY24. EBITDA margin is likely to expand 630bps driven by improving revenue mix and controlled SG&A expenses, they said. “We marginally tweak our estimates for FY23-FY24E to factor in current quarter’s performance and high costs. We expect growth momentum in branded generics business (India & EMs) and new launches in the US to continue in coming quarters supporting growth. We believe current valuations are attractive,” the brokerage said. It maintained a ‘buy’ call on the stock with a revised target price of Rs 4,925 per share based on 22x FY24E EPS and an additional Rs237 per share for Revlimid and NPV of Rs 15 for Sputnik V vaccine.
Analysts at brokerage firm Motilal Oswal Financial Services estimate 23% earnings CAGR over FY22–24, led by 16% sales CAGR in NAM, 7% in DF (adjusted for Covid-19 sales), 15% in Europe, and 13% in PSAI as well as supported by 260bp margin expansion. “We value DRRD’s base business EPS of Rs 192 at a 12M forward P/E multiple of 24x and add Rs 210 per share of NPV from the g-Revlimid opportunity,” they said. The brokerage maintained a ‘buy’ rating on the share with a target price of Rs 4,800 on a 12M forward earnings basis. The positive outlook is based on its limited-competition product pipeline in the US market, strong core therapies in DF, and the stock’s attractive valuation.
According to HDFC Securities’ technical analysis, Dr Reddy’s has recently corrected from a high of 5,615 tested in July 2021 and found support at the 3,668 levels in March 2022. The stock has since then bounced back and has reversed its recent short term downtrend in the process. “Technical indicators are giving positive signals as the stock is now trading above the 50 day SMA. Daily momentum indicators like the 14-day RSI have bounced back from oversold levels and are in rising mode now. With the intermediate technical setup looking positive, we believe the stock has the potential to move higher in the coming weeks,” said analysts. The brokerage recommended a buy within a range of Rs 4,020-4,125, with target price of Rs 4,415/4,656, stop loss of Rs 3,900 with a time horizon of one to three months.
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