Broker picks: Morgan Stanley overweight on Dr Reddy's Lab

Morgan Stanley has maintained its ‘Overweight’ rating on Dr Reddy's Lab with a target price of Rs 2,288 in view of steady growth momentum, driven by India, the US and RoW businesses and reasonable valuations. It said the company's efforts to focus on complex generics and bio-similars will help sustain high-teen P/E multiples.”

The management has refrained from giving FY14 financial guidance. However, longer term, it is optimistic about DRL’s growth and expects up-trending margins. Nearer term, it expects non-US businesses (India, Russia, PSAI, etc.) to retain their trend-line growth, and US to deliver 1-2 complex generics p.a. (subject to FDA approval).

It expects FY14 R&D expense to rise to 7-8% of sales, an F2014 tax rate of 22-23%, and capex of 5-6bn,” it said. DRL reported total revenue of Rs 3,340 crore, up 26% yoy (17% qoq), largely driven by US, Russia, and PSAI segments OPM (ex. one-time settlement income) expanded 290bp yoy (210bp qoq),to 18.6%.