Maintain Hold on Dr Reddy's Laboratories: Edelweiss
Edelweiss has maintained ‘Hold’ recommendation on Dr Reddy’s Laboratories. The brokerage has increased SOTP based value of the stock to Rs 1,625 from Rs 1375 earlier.
By ET Bureau |
MUMBAI: Edelweiss has maintained ‘Hold’ recommendation on Dr Reddy’s Laboratories. The brokerage has increased SOTP based value of the stock to Rs 1,625 from Rs 1375 earlier.
“Dr Reddy’s Laboratories’ Q2FY11 operating profit of Rs 3.2 bn was in line with our estimate of Rs 3.17 bn with higher gross margins, from better product mix, offsetting higher-than-estimated R&D costs.
Operating margins remain stable at 17.2% versus 17.3% in Q2FY10 (adjusted for $12 mn inventory write off), but were higher than our estimate of 16.6%, primarily due to higher other operating income.
PBT of Rs 3.2 bn (28% Y-o-Y) was in line with our estimate, while adjusted net profit of Rs 2.9 bn (excluding Rs 49 mn forex loss) was 8% higher than our estimate of Rs 2.7 bn, primarily due to lower tax rate of 10% versus the estimated 17%.
We are increasing our SOTP based value to Rs 1,625 (Rs 1,375 earlier), valuing the base business (ex exclusivities) at 20x FY12E EPS. We assign Rs 33 per share to one-off non-recurring opportunities. Management reiterates its overall guidance of $3 bn of revenues in FY13, which will be key support to valuations in the near term, in our view.
However, current price factors in perfect execution. We maintain ‘HOLD/Sector Performer’ on the stock,” the note said.
“Dr Reddy’s Laboratories’ Q2FY11 operating profit of Rs 3.2 bn was in line with our estimate of Rs 3.17 bn with higher gross margins, from better product mix, offsetting higher-than-estimated R&D costs.
Operating margins remain stable at 17.2% versus 17.3% in Q2FY10 (adjusted for $12 mn inventory write off), but were higher than our estimate of 16.6%, primarily due to higher other operating income.
PBT of Rs 3.2 bn (28% Y-o-Y) was in line with our estimate, while adjusted net profit of Rs 2.9 bn (excluding Rs 49 mn forex loss) was 8% higher than our estimate of Rs 2.7 bn, primarily due to lower tax rate of 10% versus the estimated 17%.
We are increasing our SOTP based value to Rs 1,625 (Rs 1,375 earlier), valuing the base business (ex exclusivities) at 20x FY12E EPS. We assign Rs 33 per share to one-off non-recurring opportunities. Management reiterates its overall guidance of $3 bn of revenues in FY13, which will be key support to valuations in the near term, in our view.
However, current price factors in perfect execution. We maintain ‘HOLD/Sector Performer’ on the stock,” the note said.
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