Centrum Broking

Dr Reddy’s Labs (Buy)

CMP: ₹2,807.40

Target: ₹3,940

We maintain ‘Buy’ rating on Dr Reddy’s Labs with a revised target price of ₹3,940 (earlier ₹3,790) based on 23x June 2016E EPS of ₹171.2. Dr Reddy’s results for Q1FY15 were higher than our expectations due to strong growth in the US, domestic and rest of the world markets. The company’s global generics business grew by 32 per cent y-o-y while pharmaceutical services and active ingredients revenues declined by 6 per cent due to price erosion and consolidation of its customers. Dr Reddy’s is likely to benefit from the strong product pipeline of 42 Para IV and 8 FTF opportunities for the US market. Key risks to our assumptions include slowdown of the US generic market and regulatory risks for its manufacturing facilities catering to global markets.

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