Prabhudas Lilladher

Target: ₹4,900

CMP: ₹4,250.60

Dr Reddy’s (DRRD) management outlined its strategy to create new (Horizon 2) business models, while growing in existing spaces (Horizon 1) to drive sustainable growth in a recent analyst meet. The company expects double-digit revenue growth in the medium term, with aspiration of over 25 per cent OPM and 25 per cent RoCE. Horzion 2 will focus on biosimilars, nutraceuticals, immuno-oncology and new disease management. .  

India market has grown 2x in the last four years.  

Contribution from the US has come down from 50 per cent in FY16 to 37 per cent. In the near term, non-US markets will continue to grow faster than US generics. In China, it aims to grow 2-3x in the next five years. In API, backward-integration of over 70 per cent core molecules should result in more than 500-bp gross margin improvement in the next five years. The EU region has already grown 2x in the last three years. Segments such as biosimilar, complex generics and other branded generics have huge opportunities in the near future.

We continue to expect steady earnings momentum and pick up in US generic business along with cost optimisation. Also, strong pipeline/new launches will drive steady growth in India and RoW markets. We expect 13 per cent EPS CAGR over FY22-24 (ex of Revlimid)..