Dr. Reddy’s Laboratories’ (DRL’s) reported Q4FY21 efficiency broadly in line with our estimates. Revenue grew 6.7% y-o-y to Rs 47.3 bn (I-Sec: Rs 48.5 bn) driven by India, EU and ROW markets. Ebitda margin at 21.5% was reduced 130bps q-o-q due to reduced sales. Adjusted PAT declined 13.1% to Rs 5.5 bn due to larger tax price. US sales enhanced 1.7% q-o-q to $239 mn led by new launches. We count on the development momentum in branded generics company (India & EMs) and new launches in US to continue in coming quarters supporting development.
Management expects to launch generic Vascepa in next two months with smooth API supplies. DRL has launched Sputnik V vaccine in India which would provide substantial upside to earnings in close to term. Retain Add.
India remains powerful, US steady: India sales grew 23.5% y-o-y with consolidation of Wockhardt solutions and recovery in sector development. Adjusting for Wockhardt integration, development stood at ~8% through the quarter and ~2% for the year. US income enhanced 1.7% q-o-q to $239 mn led by new solution launches. We think current launch of Ciprodex and expectation of Vascepa launch in close to term would assist in enhancing income run-price. PSAI company segment reported development of 10.% y-o-y led by much better volumes. EU generics reported powerful 14.8% development. EM revenues grew 10.% led by CIS and ROW.
Increase in expense base continued: Gross margin was sequentially steady at 53.7%, in line with estimate and it has enhanced by 220bps y-o-y led by enhanced company and solution mix. However, Ebitda margin dropped 130bps q-o-q to 21.5% due to reduced sales and larger R&D devote. S,G&A costs sequentially grew ~14% in Q3FY21 and this higher base has sustained in Q4FY21 led by incremental costs post Wockhardt acquisition and larger freight charges. Gross margin has been volatile on quarterly basis but we count on it to stay at ~54-56%.
Outlook: Overall, we count on revenues and earnings to develop at 14.3% and 35.4% CAGRs, respectively, more than FY21-FY23e with 610bps Ebitda margin expansion. Our estimates involve upside from Revlimid in H2FY23e. The focus of the management continues to be to enhance Ebitda margin to ~25% and RoCE by means of much better capital allocation. The launch of Sputnik V in India can provide substantial upside to our estimates.
Valuations and dangers: We marginally raise earnings estimates by 1-3% for FY22e-FY23e to element in larger other earnings. We worth Sputnik V chance at Rs 144/share on NPV basis for next 3 years. Target value is revised to Rs 5,848/ share (earlier: Rs 5,528) based on 25xFY23e EPS, an further Rs 330/share for Revlimid and NPV of Rs 144 for Sputnik V vaccine. Key downside dangers: delay in launching new solutions, regulatory hurdles and currency volatility.