Time To Buy Battered Pharma Stocks, Here's A Good Stock To Buy From The Space

Motilal Oswal has recommended buying the stock of Dr Reddy's Labs with a price target, which is close to 20% higher from the current market price.

According to the firm, the company indicated medium term aspiration to achieve double digit sales growth and 25% EBITDA margin. It achieved 12% YoY sales growth and 21.2% EBITDA margin in FY22.

Dual strategy in place

According to Motilal Oswal, Dr Reddy's has dual strategy in place. 'Horizon 1' comprises growing core segments - generics, biosimilars, API, branded generics and o"ver-thecounter (OTC) over near term. 'Horizon 2' comprises building levers for future in the areas of Immuno-oncology NCEs, biologics and CGT, Disease management, CDMO, Nutraceuticals and enhancing digital services," it has noted.

In addition to enhancing existing brands franchise, Dr Reddy's continues to offer differentiated portfolio through organic as well as inorganic means to accelerate growth prospects in domestic formulation.

 

Complex products pipeline to drive growth

According to the brokerage, the North America business for Dr Reddy's Labs has exhibited CAGR of 5% over FY19- 22 to USD1b. The company has been able to achieve the growth despite price erosion in US on the back of market share gain in certain products like gSuboxone, g-Vascepa, Dexamethasone, Metoprolol ER, and Liposomal Doxorubicin.

"Dr Reddy's has pipeline of 175 products, out of which 90 are already filed. ~40% of products are injectables/steriles. Few select products in DRRD's pipeline include Semaglutide, Teriparatide, Octreotide, Liraglutide, Regadenoson, Dasatinib in complex generics space, while Pegfilgrastim, Rituximab, Tocilizumab, Abatacept in the biosimilar space. Almost, 25+ complex products are comprising drug-device combination, peptides, long acting injectables, and ready-to-use (RTUs)," the brokerage has added.

Why Motilal Oswal has a buy call on Dr Reddy's Labs?

The brokerage estimates 15% earnings CAGR over FY22-24, led by 17% sales CAGR in NAM, 17% in Europe, and 13% in PSAI as well as supported by 260bp margin expansion. "We value Dr Reddy's base business EPS of Rs 194 at a 12M forward P/E multiple of 24x and add INR210 per share of NPV from the g-Revlimid opportunity. Accordingly, we arrive at our TP of INR4,950 on a 12M forward earnings basis. Based on its limited-competition product pipeline in the US market, strong core therapies in DF, and the stock's attractive valuation, we maintain our BUY rating," the brokerage has said.

Disclaimer

Investing in stocks is risky and investors should understand the risk. Neither the author, nor Greynium Information Technologies Pvt Ltd would be liable for losses based on the above article. Markets have become volatile on account of rising interest rates and hence investors must be careful.