Dr. Reddy's Q4 Results Review - Miss On Operating Performance: Dolat Capital

Dolat Capital Report

Dr. Reddy’s Laboratories Ltd.'s Q4 FY24 sales were in-line with estimates while Ebitda was a miss. Profit after tax came above estimate due to lower-than-expected tax rate. Revenues at Rs 70.8 billion in Q4 FY24 grew 17% YoY excluding divestment of non-core brands in the base.

Ebitda stood at Rs 17.8 billion (+35%/-11.6% YoY/QoQ) and Ebitda margin at 25.2% expanded by 333 basis points YoY on better gross margin offset by higher selling, general and administrative and research and development expenses.

We assume gRevlimid sales contribution for Q4 FY24 to be ~$115 million and base business margin at 18% was below our estimate.

While we are positive on structural growth story of Dr. Reddy’s, recent rally in the stock price limits upside from current levels. Thereby, we downgrade our rating to ‘Reduce’ from Accumulate with revised SOTP based target price of Rs 6,450 (earlier Rs 6,505) valuing at 25 times FY26E base earnings per share supported by new launches, volume growth and abating price erosion, plus a gRevlimid net present value of Rs 416/share.

Key risks are: - higher price erosion in the U.S., any regulatory issues related to its facilities.

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