Hold Dr. Reddy’s Laboratories Ltd For Target Rs. 1,250 - Axis Securities Ltd
Est. vs. Actual for Q4FY25: Revenue – INLINE; EBITDA Margin – MISS; PAT – BEAT
Changes in Estimates post Q4FY25:
FY26E/FY27E: Revenue: -1.2%/-1.1%; EBITDA Abs: -1.2%/3.8%; PAT: -3.7%/2.2%
Recommendation Rationale:
The company reported a 19.9% YoY revenue growth, aided by the acquired NRT business, which contributed Rs 597 Cr. Excluding NRT, the underlying revenue growth stood at 11.5% YoY. North American operations witnessed muted growth due to pricing pressure and lower sales of select products, though partially offset by new product launches and volume gains. The India business grew 15.8% YoY, while the Europe business, excluding NRT, posted a robust 30% YoY increase. The Emerging Markets and API businesses also delivered healthy YoY growth of 15.6% and 22%, respectively.
Gross margins for Q4FY25 were at approximately 66.6%, down 400 bps YoY and 262 bps QoQ, primarily impacted by a one-off cost related to manufacturing overheads. For Q4, gross margins stood at 59.3% for the Global Generics segment and 26.3% for the PSAI segment. EBITDA came in at Rs 1,998 Cr, translating to a margin of 23.4%, down 232 bps YoY and 370 bps QoQ. Reported PAT stood at Rs 1,587 Cr, ahead of estimates, supported by higher other income.
Sector Outlook: Positive
Company Outlook & Guidance: We expect multiple levers to support the company’s revenue growth trajectory going forward. The biosimilar segment remains a key growth driver, with two biosimilars slated for launch in Europe, each having the potential to contribute $40–50 Mn in sales in FY26E. Additionally, Denosumab, scheduled for launch in FY27E, is estimated to generate $50 Mn in annual sales. Another structural growth catalyst is the GLP-1 segment, currently a $10 Bn market, which is expected to grow 5x over the next 5–6 years, offering significant upside potential.
Current Valuation: PE of 17x for FY27E earnings.
Current TP: Rs 1,250/share; ( Earlier TP: Rs 1,450/share)
Recommendation: We change our recommendation on the stock from BUY to HOLD.
For More Axis Securities Disclaimer https://simplehai.axisdirect.in/disclaimer-home
SEBI Registration number is INZ000161633
