Motilal Oswal Recommends To Buy This Pharma Stock For, 22% Upside

The stocks of leading pharma company Dr. Reddy's Labs (DRRD) can give returns up to 22%, recommended brokerage firm Motilal Oswal, in a recent report. Based on its limited-competition product build-up for the US market, steady outperformance in the DF market, cost optimization, and the stock's attractive valuation, the firm maintains a buy rating.

Target Price

The Current Market Price (CMP) of Dr. Reddy's Labs is Rs. 4218. Motilal Oswal has estimated a Target Price for the stock at Rs. 5160. The company is expected to offer a 22% upside, in 1 year.

Stock Outlook
Current Market Price (CMP)	Rs. 4218
Target Price	Rs. 5160
1 year return	22.00%

Company performance

DRRD's 3QFY22 revenues grew 10% YoY to Rs. 53.2b. Emerging market sales were up 20% YoY to Rs. 11.5b. Growth in the emerging markets was seen on the back of 47% YoY growth in the ROW market (Rs. 4.4b); Russia revenues (Rs. 4.7b) grew 5% YoY. CIS revenues (Rs. 2.4b) grew a moderate 11% YoY. India sales are up 15% YoY to Rs. 10.2b (19% of sales). The gross margin expanded 80bp YoY to 53.8% owing to a change in the product mix. The EBITDA margin expanded at a higher rate of 120bp YoY to 22.6%. Additionally, DRRD's adjusted PAT grew 19.6% YoY to Rs. 7b.

Comments by Motilal Oswal

Giving a buy rating to Dr. Reddy's Labs, Motilal Oswal mentioned, "Dr. Reddy's Labs (DRRD)'s 3QFY22 results were below the brokerage firm's estimates, weighed by moderation in Europe / Pharma Services and Ingredients (PSAI), lower other income, and higher tax rate. The overall YoY growth in earnings was driven by healthy growth in India / the US and sustained momentum in other emerging markets." However, the added, "Despite the double-digit price erosion seen in the US market, DRRD delivered 7% YoY growth in the US, implying a better product mix and market share gains in existing products."

About the company

Dr. Reddy's Labs' Generic Formulations business addresses the urgent need for affordable medicines, by offering more than 200 high-quality generic versions of expensive innovator medicines-at a fraction of the cost-in over 80 countries around the world. The company's R&D Center is spread over 300,000 sq. ft.; the center houses over 70 laboratories and has over 800 research scientists working on various projects. Generic Formulations, including tablets, capsules, injectables, and topical creams, are the largest part of Dr. Reddy's Labs' business portfolio.

(Also read:  Motilal Oswal Gives Buy Rating To This Telecom Stock For 29% Return Potential)

Disclaimer

The above stock was picked from the brokerage report of Motilal Oswal. 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.