Dr. Reddy's, Lupin, IRB Infra, Max Financials, Kansai Nerolac, Sonata Software Q4 Review: HDFC Securities

HDFC Securities Institutional Equities

Dr. Reddy’s - In-line Quarter, Revlimid Traction Stays, Base EPS Under Check

Dr. Reddy's Laboratories Ltd.'s Ebitda grew (14% YoY) as +13% YoY sales growth (-3% QoQ U.S., +5% YoY in Europe, +9% YoY emerging markets, and +34% YoY in rest of world; India declined 12% YoY; adjusted growth was at 11%), steady gross margin (+65 bps YoY) and muted staff cost were offset by higher research and development/selling, general and administrative (+28/+22% YoY). Dr. Reddy's expects to sustain growth in the U.S. over the next few years with steady traction in gRevlimid and new launches (20+ launches p.a. for the next few years).

The company expects India to see steady growth in FY25, led by new launches, scale-up in key therapies, and in-licensing opportunities. Guides for higher R&D at 8.5-9% (versus 8.2% in FY24) towards its differentiated assets (new chemical entities, biosimilars, over-the-counter, peptides, specialty); monetization to take two-three years.

Joint venture with Nestle would materialise in the next two-three years. We have raised EPS estimates for FY25/26E by 10%/ 8% to factor in higher-than-expected sales from gRevlimid, which will result in a higher margin.

However, the base business (ex-gRevlimid) remains under pressure with increasing competition in key products in the US market and market share loss in leading therapies in India business.

We have rolled forward target price to Rs 6,050 (25 times FY26E earnings per share + Rs 200/share from gRevlimid versus 24 times Dec-25E + Rs 150/share earlier). Maintain Reduce.

Lupin - Steady quarter; growth/margin triggers are factored in

Ebitda growth (+65% YoY) was led by 12% YoY sales growth (US: -1% QoQ, India +8% YoY, EMEA: +17% YoY and +8% RoW), higher gross margin (+778 bps YoY), but it was partly offset by higher costs (staff/R&D/SG&A up +16/ 40/ 7% YoY).

Lupin expects the U.S. business to see single-digit growth in FY25 (to sustain $200+ million per quarter sales rate) on traction in gSpiriva (targets ~35-40% market share in FY25) and new launches (opthal, injectable, respiratory, etc.).

It expects its India business to see double-digit growth, led by the traction in key therapies and new launches as well as traction from biosimilar launches. It expects to achieve an Ebitda margin of ~20% in FY25 and expand 200-300 bps over the next two years.

Factoring in FY24 performance and margin guidance, we raise our EPS by ~3/4% for FY25/26E and roll forward target price to Rs 1,600 (26 times FY26E) versus Rs 1,470 (26 times Dec’25E).

We maintain Reduce, as we believe that growth visibility (led by growth in the US— gSpiriva and new launches and India—new launches and traction in key therapies) and improving margin (led by sales growth, better mix, and cost optimization) are already priced in. We see limited upside, given rich valuations.

IRB Infra - Ordering pick-up next trigger

IRB Infrastructure Ltd. reported revenue/Ebitda/adjusted profit after tax of Rs 20.6/8.8/1.8 billion, ahead of our estimates by 14.5/11/28.5% resp. Ebitda margin came below our estimate of 44.5% at 43.2% (-366/-100 bps YoY/QoQ), primarily due to the mix. The order book as of March 2024 stood at Rs 348 billion, with EPC contributing 16.3% (Rs 57 billion) and operation and maintenance contributing 83.7% (Rs 291 billion). The consolidated gross debt as of Mar’24 stood at Rs 147 billion versus Rs 133.7 billion as of Dec-23.

On recently proposed guidelines by the RBI, IRB doesn’t see any further impact on its financials as banks are already charging higher interests for under-construction projects by 60-70 bps versus operational projects. The company expects considerable orders worth Rs 2 trillion over the next 12-18 months in BOT toll and it expects to win 250-300 billion (~15% market share).

We have recalibrated our EPS estimates higher to factor in better growth and resultant improvement in margins owing to the mix. Given the improving outlook on ordering, better-than-expected toll growth and likely interest rate cuts, we increase our SOTP-based target price to Rs 72/share. Owing to the limited upside on current market price, we maintain our Add rating on the stock.

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