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Our view

A 30% revenue growth quarter should uniformly boost confidence and bolsters our belief of a sustainable revenue growth phase. While we would have ideally liked a more US driven beat in Q1, reckon US should rebound in subsequent quarters to 18‐20% growth. Call commentary is in sync with our thesis that even if ROW markets grow faster (which they will), overall margin trajectory should not inch lower. Reason being operating leverage would offset presumably reduced gross margin from ex‐US markets. Directionally, Gland would also pivot towards complex products which might be slower in terms of approval timeline but offer a more durable growth beyond FY23. Capex of Rs7.7bn spread over FY22‐23 for additional oncology lines and fresh API facility should improve mix and deepen backward integration – though again some of it can be offset by continued faster growth in ROW/India markets. We have introduced FY24 estimate and build in sustained revenue growth across core and ROW markets coupled with improved gross margin. We revise TP to Rs4,500 from Rs3,400 with bulk of it driven by roll over to FY24 EPS (+30% YoY) coupled with marginal bump in target PE to ~35x from 32x earlier as we are confident of 1) sustained revenue momentum beyond FY23 which should take care of margin trajectory and 2) asset turn efficiency to sustain ROCE.   

Result Highlights

* India, ROW market shine through YoY driven by COVID drugs and penetration in non‐core markets

* Gross margin declined qoq on faster ROW growth and also COVID drugs would have had a higher COGS than rest of portfolio – also seen in results of peer companies selling Remdesivir  

* Vaccine ramp up would be keenly eyed as it can contribute ~10% to FY23 EPS

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