Dr. Reddy’s Q4 Results Review - Drop In Ebitda Due To Increase In R&D Spends: Systematix

Systematix Research Report

Dr. Reddy’s Laboratories Ltd. Q4 FY24 revenue were broadly in line with expectations, but Ebitda came in lower than expectations owing to significant surge in research and development investments (9.7% of sales versus 7.7% in Q3 FY24). Research and development investment are being driven by biosimilar pipeline and novel oncology assets. About 20% of the R&D spend is towards clinical trials on Biosimilars.

In the near term the small molecule launches should continue to support growth in the U.S. About 20 plus launches are expected in FY2025, but there is no visibility around how many of these would be limited competition.

Over the last several years, we haven’t seen many limited competition launch (complex generic) from Dr. Reddy's internal R&D pipeline and hence we remain cautious and do not build any meaningful upside to our U.S. forecasts.

While company continues to file new products aggressively in China, we prefer to be cautious on the growth opportunity considering the geopolitical risks.

We retain our estimates on Dr. Reddy's and maintain our Hold rating with target price of Rs 5,518 Based on 16 times FY26E earnings per share. Strong Ramp up in China and meaningful contribution from limited competition launches in the U.S. are upside risks to our estimates.

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