ICICI Securities
Dr Reddy’s Laboratories (Reduce)
CMP: ₹2,965.05
Target: ₹2,544
Dr Reddy’s Laboratories (DRL) stock price has appreciated about 10 per cent over the past few days without a discernible positive development or fundamental change. We believe the valuations now are overestimating the large product opportunities (Nuvaring, Copaxone, etc.) and the cost control benefits.
Key concerns: 1) continued delay in launch of generic Nuvaring and Copaxone; 2) pending USFDA highlighted observations and warning letter at Srikakulam API facility restrict Copaxone launch; and 3) the pending 483 observations at Duvvada facility would impede growth.
Valuation: We believe the risk-reward is unfavourable at current valuation of 24.7xFY21E earnings, which overestimates the cost control benefits and potential product opportunities. Maintain ‘Reduce’ with a target price of ₹2,544.