Shares of Dr Reddy’s Laboratories slipped 7 per cent in early trade on May 11, a day after the company posted its Q4 results. The drugmaker’s net profit for the quarter jumped 10-fold to Rs 959.2 crore from Rs 87.5 crore in the same period last year but still lagged the Street’s estimate of Rs 1,093.6 crore.
Its revenue from operations stood at Rs 5,843 crore in Q4 FY23, up 15.28% YoY as against Rs 5,068.4 crore in Q4 FY22. Meanwhile, total expenses were down 4 per cent at Rs 5,132.2 crore against Rs 5,348.4 crore in Q4FY22.
Revenue came in at Rs 6,296.8 crore, 15.81 per cent up from Rs 5,436.8 crore in the year-ago quarter. The topline beat the Street’s expectation of Rs 6,090.5 crore for the quarter under review.
EBIDTA margin also expanded to 25.9 percent in January-March from 23.9 per cent in the same quarter last year.
“Dr Reddys’ reported an all round miss vs our expectation as US revenues declined 17% QoQ and margin stood at 25 per cent. Management commentary reaffirmed growth in US business though we sense it may be difficult to grow on a Revlimid base in FY25 and beyond,” YES Securities said.
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Brokerages, however, don’t seem too impressed with the numbers as subdued performance of the core business and waning of gRevlimid’s disproportionately high contribution points towards pain.
Even though the management expects gRevlimid to continue contributing to its revenue in the coming quarters, brokerages do not share the optimism.
Nuvama Institutional Equities, said that given the contribution from gRevlimid was cut in half, Q4FY23 was a stronger reflection of the company’s main business than Q2/Q3. The pipeline for the company is strong, but the brokerage points out difficulties with important items like gCiprodex, where market share has dropped by roughly 1200 bp, and gVascepa, gKuvan, and gNuvaring, which have plateaued.
It predicted single digit organic growth despite successful launches like gRemodulin and gLexsican, at roughly USD950mn ex gRevlimid base.
The brokerage has downgraded the stock to ‘Reduce’ despite gRevlimid strength.
“We keep FY24/25E consolidated EPS unchanged, but cut core EPS (ex- gRevlimid) by about 12% given core business challenges. Our 300bp Q4FY23–FY25 core margin expansion captures upside potential. Our ₹4,200 target price (vs ₹4,675) is based on unchanged 22x FY25E EPS and ₹435 from gRevlimid; downgrade to ‘REDUCE/SU’,” said the brokerage in its report.
Prabhudas Lilladher downgraded Dr Reddy’s to Reduce from Buy with a revised target price of Rs 4,500 from Rs 4,900.
“Dr Reddy’s Q4FY23 reported profitability was in line with our estimate. Adjusted for one-time divestment income (Rs 2.65 billion), EBITDA was 20% below our estimates impacted by lower GMs and higher overheads. Our FY24E and FY25E EPS stands reduced by 10% and 6% as we factor in lower margins ex of gRevlimid,” it said.
YES Securities downgraded Dr Reddy’s to Neutral with a target price of Rs 5,150.
“Dr Reddys’ reported an all round miss vs our expectation as US revenues declined 17% QoQ and margin stood at 25%. Management commentary reaffirmed growth in US business though we sense it may be difficult to grow on a Revlimid base in FY25 and beyond,” YES Securities said.
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