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In line numbers; focus on launches, cost to continue...

Q4 revenues grew 7.2% YoY to | 4768 crore. India sales grew 23.5% YoY to | 844 crore due to Wockhardt integration and new launches. Europe revenues grew 14.8% YoY to | 396 crore amid new launches. US revenues de-grew 3.2% YoY to | 1749 crore mainly due to Covid related stocking in Q4FY20. Russia & Other CIS sales grew 4% to | 593 crore.

PSAI segment grew 10% YoY to | 792 crore amid new product launches. EBITDA margins were up 75 bps YoY to 22.1% due to better product mix, partly offset by higher freight and Wockhardt integration costs. EBITDA grew 11.0% YoY to | 1053 crore. PAT de-grew 28.7% YoY to | 557 crore. Delta vis-a-vis EBITDA was due to negative tax outgo in base year amid DTA adjustments.

US, key growth driver with promising launches ahead

US remains a key driver, contributing ~37% to revenues as of FY21. DRL has a strong pending pipeline comprising 92 ANDAs (47 Para IV filings, 23 FTFs) and three NDAs under 505 (b) (2) route. We expect US sales to grow at a CAGR of 8% in FY21-23E to | 8252 crore on the back of new launches.

India, Russia CIS to provide more stability

India, Russia CIS markets are more or less identical in nature (branded generics, OTC) with similar growth potential, similar kinds of risks. DRL is well versed with the dynamics of Russia by virtue of being an early mover. Notwithstanding Covid-19 related quarterly gyrations, we expect strong growth in these markets on the back of a stabilising currency, geographical expansion, robust biological portfolio, ramp up in institutional business.

For India, growth may be largely from launches in oncology & biosimilar space, UCB/Wockhardt like acquisitions besides MR productivity improvement. We expect Russia & other CIS to grow at ~15% CAGR in FY21-23E to | 3061 crore with India growing at ~13% CAGR in FY21-23E to | 4236 crore.

Valuation & Outlook

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. This is a welcome change from earlier stance of overemphasis on a particular market (read US). Strong FCF generation, healthy b/s are some legacy strongholds for the company.

We believe the efforts taken in the last few quarters are sustainable and should support stable performances, going ahead. Besides, DRL is all set to expand Sputnik V vaccine rollout in India. Although it is still early days to gauge the potential, we have assumed some traction from this as a separate NPV. As the stock is factoring most of the aspects at current level, we change from BUY to HOLD and arrive at a TP of | 5570 (earlier | 5525), with a base business value of ~| 5217 (25x FY23E EPS of | 208.6) + | 353 for NPV of gRevlimid and Sputnik.

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