Buy This Large Cap Pharma Stock With A Target Price of Rs. 5,900: Sharekhan

The brokerage’s take on Dr. Reddy's Laboratories Ltd

Sharekhan has stated in its research report that "Dr. Reddy's Laboratories (DRL) COVID-19 portfolio includes an array of drugs and sputnik V & Sputnik light vaccines. With the onset of the new Omicron variant, demand for these drugs/vaccines is likely to pick up. Moreover, USFDA's Emergency Use Authorization (EUA) for anti-COVID oral drug, Molnupiravir, points at likely approval from Indian regulators also, which bodes well for DRL as it has rights for Molnupiravor for India and LMICs. Moreover, DRL is committed to resolving eight observations received from the USFDA for the Duvvada formulations plant and is confident of submitting timely responses. The approval of the facility is critical as the company has products filed from the site for US markets. Overall growth prospects across India and US geographies stay bright."

According to the brokerage "DRL's Duvvada plant was inspected by the USFDA in October 2021 and the inspection ended with form 483 and eight observations with none pertaining to data integrity issues nor was there any repeat observation. Management is committed to resolving these observations, which could take a few months and intends to submit its responses in the stipulated time frame. Approval of the facility is critical as the company has products filed from the site in US markets."

Sharekhan has further said that "DRL's COVID-19 portfolio includes an array of drugs including - Remdesivir, Avigan, 2-deoxy-D-glucose (2DG), Molnupiravir, and Sputnik vaccines. With the recent spike in COVID-19 cases due to the new variant Omicron, there is a possibility of a pick up in demand for Sputnik V and Sputnik Light (as a booster dose). As per RDIF, Gameliya Institute is in the process of developing a new version of Sputnik to treat the new variant, and this could also have a positive rub-off effect on DRL. Further, USFDA has issued a EUA for an anti-viral oral drug for Covid-19 - Molnupiravir, and this points at a possibility of approval by Indian regulators as well. DRL has Molnupiravir rights for India and certain low and middle-income countries."

According to the research report of the brokerage "DRL's new product launch intensity in the US has been strong and going ahead is expected to remain healthy due to a strong product pipeline. This coupled with pick up in the base business could drive US sales and would enable to tide over competitive pressures. India business is also expected to stage strong growth, backed by expansion in rural areas, contribution from COVID-19 portfolio, growing OTC portfolio, and new launches. In addition, the company plans to leverage the digital platform for growing its brands, which is expected to improve profitability as well."

Buy Dr. Reddy's Laboratories Ltd With A Target Price of Rs. 5,900 Says Sharekhan

Sharekhan has claimed that "DRL's Duvvada plant, inspected in October 2021, had received Form 483 with eight observations, with no data integrity issues. Moreover, observations are largely procedural in nature and management seems confident of resolving the same. Further, the company has a strong product pipeline for the US; and this coupled with a ramp-up in new products and pick-up in the base business would drive US sales and enable to reduce the impact of high competitive pressures in US markets. Further, growth in acquired products, focus on the OTC portfolio, and rural areas for growth coupled with leveraging the digital platform would fuel India's business growth. This would also be complemented by a strengthening portfolio of COVID-related products, including the vaccine."

According to the brokerage "With the onset of the new variant, demand for vaccines is likely to increase given the possibility of a booster shot being evaluated. Moreover, EUA for antiviral oral COVID-19 drug - Molnupiravir by USFDA points at a higher possibility of approval by Indian regulators as well. DRL has rights for Monupiravir for India and other LMIC and if approved would add to DRL's topline. At the CMP, the stock is trading at a P/E multiple of 28x/22.1x its FY2022E/FY2023E EPS; and over the past six months, the stock price has corrected by ~17%, which provides a good opportunity. We reiterate our Buy recommendation on the stock with an unchanged PT of Rs. 5,900."

Disclaimer

The stock has been picked from the brokerage report of Sharekhan. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.