Dr Reddy’s (Q4 FY13)

India Infoline News Service | Mumbai |

Revenue growth of 25.6% yoy to Rs33.4bn was ahead of our expectation by 10%. Revenues from Global Generics segment grew by 22.7% yoy to Rs22.6bn, wherein North America grew by 30.7% even on a higher base of last year and Europe was flat.

CMP Rs2,080, Target Rs2,290, Upside 10.1% 
  • Revenue growth of 25.6% yoy to Rs33.4bn was ahead of our expectation by 10%
  • Global Generic business advanced by 8.3% qoq and declined by 22.7% yoy to Rs22.6bn
  • Domestic growth declined 5.2% qoq and grew 8.7% yoy to Rs3.5bn
  • Europe grew by 58.3% yoy and the US business advanced by 30.7% yoy
  • PSAI segment continued to report robust growth (+35.9%) even In this quarter
  • Adjust EBITDA margin at 20.9% was lower than our estimate on the back of higher R&D and SG&A expenses; even product mix impacted the margin
  • Reported PAT was up by 66.6% yoy to Rs5.7bn; adj PAT at Rs4.4bn was above our estimate by only 4.5% ; the benefit of higher revenue did not percolate to bottom line
  • We maintain our BUY rating with a revises target price of Rs2,290
Result table
(Rs mn) Q4 FY13 Q4 FY12 % yoy Q3 FY13 % qoq
Net sales 33,399 26,585 25.6 28,652 16.6
(Inc)/dec in stock 1,078 137 685.4 (454) (337.3)
Con of Materials (10,300) (8,440) 22.0 (9,437) 9.1
Other Expenditure (5,176) (4,036) 28.2 (4,781) 8.3
Gross Profit 16,845 13,971 20.6 14,888 13.1
SG&A Expenses (7,227) (5,813) 24.3 (7,189) 0.5
R&D Expenses (2,326) (1,740) 33.7 (2,025) 14.8
Other (Inc)/Expen (1,631) (198) - (233) -
Operating profit 8,922 6,615 34.9 5,907 51.0
OPM (%) 26.7 24.9 183 bps 20.6 610 bps
Dep & Amort (1,495) (2,444) (38.8) (1,382) 8.2
Net Interest income 397 82 383.3 (97) (510.4)
Other income 26 12 123.5 31 (17.9)
PBT 7,850 4,265 84.1 4,460 76.0
Tax (2,142) (838) 155.6 (827) 159.1
Effective tax rate (%) 27.3 19.6 763 bps 18.5 875 bps
Reported PAT 5,709 3,427 66.6 3,633 57.1
PAT margin (%) 17.1 12.9 420 bps 12.7 441 bps
Adjustments (1,300) 836 - 100 -
Adj PAT 4,409 4,263 3.4 3,733 18.1
Adj Ann. EPS (Rs) 103.7 100.6 3.2 87.8 18.1
Source: Company, India Infoline Research

Revenue growth of 25.6% yoy to Rs33.4bn was ahead of our expectation by 10%

Revenue growth of 25.6% yoy to Rs33.4bn was ahead of our expectation by 10%. Revenues from Global Generics segment grew by 22.7% yoy to Rs22.6bn, wherein North America grew by 30.7% even on a higher base of last year and Europe was flat. Revenues from Russia and Other CIS markets at Rs4.6 billion recorded yoy growth of 29.5%, while revenues from ROW at Rs1.3bn grew by 18.4% yoy and registered decline of 15% qoq.


Base growth in North America was notable

Growth in North America was largely driven by key limited competition products of ziprasidone, tacrolimus, fondaparinux, clopidogrel, ramp-up in antibiotics portfolio and products from Shreveport facility. The growth was also aided by the  continued focus on gaining market shares of new products such as atorvastatin, metoprolol, ibandronate and montelukast granules. We believe North Americas’ business to inch up with new product launches like Propecia and other two limited competition product in next two quarters. Also, continuous gain in market share of launched niche product will support growth in future. In FY13, The company filed 19 product (18 ANDAs and 1 NDA) in US. Cumulatively, 65 ANDAs are pending for approval with the USFDA of which 38 are Para IVs and 8 have ‘First To File’ status.


Revenue Break-up
Rsmn. Q4FY13 Q4FY12 % yoy Q3FY13 % qoq
Global Generics 22,566 18,396 22.7 20,828 8.3
Nort America 11413 8731 30.7 9243 23.5
Europe 1,830 1799 1.7 1931 (5.2)
India 3481 3203 8.7 3718 (6.4)
Russia & Other CIS 4592 3545 29.5 4380 4.8
RoW 1322 1117 18.4 1556 (15.0)
PSAI 10,172 7,484 35.9 7,127 42.7
North America 2071 1192 73.7 1266 63.6
Europe 4396 2777 58.3 2472 77.8
India 1611 1310 23.0 1268 27.1
RoW 2109 2206 (4.4) 2121 (0.6)
Proprietary Products 662 702 (5.7) 696 (4.9)
Total 33,400 26,582 25.6 28,651 16.6

PSAI segment continued to surprise us with a robust growth of 35.9% yoy to Rs10.1bn

The robust growth in Active Ingredients business was continued even in this quarter led by new launches by the generic customers and higher customer orders in the custom pharmaceutical business. We expect the growth momentum to continue with higher contribution from Indian plants. During the year, 47 DMFs were filed globally, including 5 in the US and 10 in Europe. The cumulative number of DMF filings as of March 31, 2013 is 577.


Adj EBITDA margin at 20.9% was lower than estimate on the back of higher R&D and SG&A expenses

The company missed out on margin front on the back of lower gross margins, higher SG&A expenses and R&D expenses. EBITDA margin at 20.9% was lower than our estimate by 200bps. Reported margin are at 26.7% is inflated on the back of higher operating income.  The company benefited by an amount of US$22.5mn from one-time settlement with NordionInc (MDS Inc). The settlement is towards the damages sustained by the Company due to the breach of contract by Nordionof (existing Laboratory services agreement for bioequivalence studies). Resultantly reported PAT was also inflated. adj PAT at Rs4.4bn was above our estimate by only 4.5% as lower operating margins did not allow to percolate the benefit of higher revenue to bottom line.


Outlook & Valuation

Superior revenue mix coupled with competent R&D makes Dr Reddy’s(DRDY) as one of the best bet in pharma space. The company in the US has significant presence in generic business along with the good traction in OTC business. Robust Domestic and International generic market growth along with improving outlook of PSAI provides us comfort. We expect DRDY’s revenue and PAT to witness a CAGR of 19% and 23% over FY13-15E, respectively. We maintain BUY on DRDY with a revised 9-month price target of Rs2,290


Financial Summary
Y/e 31
 

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