369009 SIP myths you must know!

If there is one listed pharmaceutical company that has been able to tap the maximum opportunities related to  Covid-19 drugs, vaccine and innovations in India, it is Dr Reddy’s Laboratories (DRL).

DRL is one of the leading pharmaceutical companies globally with higher presence in the formulations segments and a backward integration for select APIs. Globally, the company is present in most markets with US and India accounting for 37% and 17%, respectively, of the overall sales.

Dr Reddy’s Covid-19 portfolio

The company’s Covid-19 portfolio has widened substantially and the company is working towards strengthening it further. It includes an array of drugs including – Remdesivir – the supplies of which were ramped up to meet the increasing demand in India.

It also has other drugs like Avigan or Favipiravir which is under phase II trial in North America.

Dr Reddy’s Laboratories last week inked a licensing pact with Eli Lilly to produce Baricitinib in the country for treatment of Covid-19.

This has helped in adding to the company’s existing range of Covid-19 therapeutics covering the full spectrum from mild to moderate and severe conditions of the disease.

In addition to this, the company has also launched the Covid-19 Vaccine – Sputnik V as part of an agreement with Russian Direct Investment Fund. The company in a partnership with Apollo Hospitals has already begun the trial rollout of the vaccine in India.

Apart from this, DRL is mulling approaching drug regulatory authorities to seek waiver for separate clinical trials of Sputnik Light, the single-dose version of Russian Sputnik V, which has been recently approved in Russia to speed up the process of making it available faster locally.

As a break-through, the Drug Controller General of India (DCGI) has recently also given emergency use approval to 2-deoxy-D-glucose (2-DG), an anti-Covid drug developed by the Institute of Nuclear Medicine and Allied Sciences (INMAS), a DRDO lab, in collaboration with Dr Reddy’s Laboratories (DRL).

Deoxy-D-glucose (2-DG) comes in a powdered form in a sachet, is taken orally by dissolving in water. The drug is a repurposed drug as the 2-DG molecule is meant for treating tumour, cancer cells and is projected as one to help in faster recovery and is likely to cut O2 dependency.

Deepak Sapra, Chief Executive Officer, API and Services, Dr. Reddy’s Laboratories, in media statements has been quoted saying, “From the start, we have been determined to explore every possible avenue against COVID-19.”

The stock prices of the company too have risen quite sharply following its strengthening Covid-19 portfolio. From the start of the second wave on March 10, 2021, the stock has run up 16% already.

Q4 Earnings Review

DRL reported a healthy operating performance for Q4FY2021, although PAT declined on a y-o-y basis due to tax rebate in the corresponding quarter. Analysts see improving growth prospects, sturdy new product pipeline, growth in the base business would be key drivers for US business, while growth in the acquired portfolio and likely pick up in the acute therapy would fuel India business growth.

What should investors do?

Motilal Oswal | Target: Rs 5,670

We raise our EPS estimates for FY22/FY23E by 5%/6%, factoring in the resolution of API supply issues for niche launches in the US, better operating leverage in DF, and an enhanced Covid portfolio. We expect a 22% earnings CAGR over FY21–23E, led by a sales CAGR of 12% in NAM, 27% in DF, and 19% in PSAI – supported by 90 basis points margin expansion.

Sharekhan | Target: Rs 6,500

Sharekhan by BNP Paribas says it believes that strengthening Covid-19 portfolio, cost control & productivity improvement measures, synergies through partnerships, strong execution, and product-specific opportunities would be key growth drivers for DRL. The brokerage has retained a Buy with an unchanged target of Rs. 6,500

ICICI Direct | Rating: Hold | Target: Rs 5,570

We continue to draw comfort from the management’s sustained focus on cost rationalisation, especially on SG&A front and endeavour to focus on simultaneous launches across geographies and segments besides realignment of R&D spend towards – Global Generics, Biosimilars and PSAI segment.