Dr. Reddy's Labs Q3 Results Review - North America, PSAI Drive Earnings: Motilal Oswal

Motilal Oswal Report

Dr. Reddy’s Laboratories Ltd. delivered a marginally better-than-expected performance for the quarter, led by healthy traction in the North America and pharmaceutical services and active ingredients segments.

The India business has been witnessing moderation in YoY growth for three quarters now. Dr. Reddy's continues to invest on its product pipeline, and marketing initiatives across key markets. The benefits are expected from FY25 onwards.

We raise our earnings estimates by 7%/5%/4% for FY24/FY25/FY26 factoring in:

1. market share expansion in key products,

2. new launches, and

3. better operating leverage.

We value Dr. Reddy's on an SOTP basis (22 times 12 months forward price/earning for the base business and adding net present value of Rs 90 for g-Revlimid) to arrive at our target price of Rs 5,540.

Even after raising our earnings estimates, we expect a modest 3% earnings compound annual growth rate over FY24-26. Further, the product-specific concentration of earnings remains elevated for Dr. Reddy's. Reiterate 'Neutral'.

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