- 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
|(Rs mn)||Q4 FY13||Q4 FY12||% yoy||Q3 FY13||% qoq|
|(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|
|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)|
|Effective tax rate (%)||27.3||19.6||763 bps||18.5||875 bps|
|PAT margin (%)||17.1||12.9||420 bps||12.7||441 bps|
|Adj Ann. EPS (Rs)||103.7||100.6||3.2||87.8||18.1|
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.
|Rsmn.||Q4FY13||Q4FY12||% yoy||Q3FY13||% qoq|
|Russia & Other CIS||4592||3545||29.5||4380||4.8|
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