Dr. Reddy's Laboratories' Q3FY18 results (Underperformer) - US sales surprise positively; Big ticket ANDA approvals remain key
Q3FY18 result highlights
- Revenues came in higher at Rs38.06b, vs est of Rs35.3b led by higher US revs at $248m (Q2 $221m; est $231m). Proprietary products revenues were boosted by one-off Rs1.3bn of milestone income. While domestic sales grew +11% like to like, branded formulations exports came at Rs5.9bn vs est of Rs5.7bn and PSAI came in at Rs5.4b vs est of Rs5.2b.
- Adj for Rs1.3bn income, Rs20.3bn gross profits beat est of Rs18.7bn. Adj for Rs319mn non-recurring charge, SG&A cost stood at Rs8.7bn vs est of Rs8.4bn. R&D costs also came in at Rs4.7bn (6% lower yoy). Reported EBITDA came at ~Rs7.7bn / 20.2% (Rs6.6bn / 18.7% in Q2). Adj for one offs, EBITDA was higher at Rs6.7bn (est Rs5.5bn).
- DRL booked one off income of Rs698mn on investment sale. Tax rate stood higher at 44% as it included one off tax charge of Rs930mn. PAT came in higher at Rs3.3bn (Rs2.8mn in Q2FY18) vs est Rs2.5bn
- Mgt – Q4FY18 US sales likely to be soften than Q3FY18. Overall, FY19 to witness better quality of US ANDA approvals vs FY18.
- Big 3 status – CRL issued for gCopaxone DMF which is expected to be responded in 5-6m. gSuboxone – have received minor CRL and continue to monitor the litigation status. gNuvaring – new TAD is for Q2FY19
Key positives: Higher US sales and gross margins, steady SG&A cost
Impact on financials: We have reduced our FY18/19 est by 28%/7% to factor in delays in big ticket US launches and introduced FY20 est
Valuations & view
Despite sharp qoq US sales growth and flattish R&D spends, DRL’s adjusted EPS run-rate continues to hover around ~Rs20/qtr. Given that current US sales base will moderate with likely erosion in gRenvela and other key drugs along with increase in R&D spends, launch of multiple big ticket ANDAs (amongst gCopaxone / gNuvaring / gSuboxone) remains vital to achieve the projected spike in EBITDA / earnings. Though DRL has one of the most valuable ANDA amongst peers, the timing of approval of new big ticket drugs from this pipeline remains unclear for now, as highlighted by the mgt. This creates significant uncertainty in terms of predicting the timing and extent of recovery in DRL’s FY19 earnings. Given reasonably rich valuations and earnings uncertainty, we maintain Underperformer. Further clarity on the niche ANDA approvals will be trigger for upgrade.
Dr. Reddy's Laboratories is an integrated global pharmaceutical company committed to providing affordable and innovative medicines. Co. derives its revenues from the sale of finished dosage forms, active pharmaceutical ingredients and intermediates, development and manufacturing services provided to innovator pharmaceutical and biotechnology companies, and license fees from marketing authorizations for its products. Co.'s principal areas of operation are in global generics, pharmaceutical services and active ingredients, and proprietary products.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.