Fall in Dr Reddy's stock price an over-reaction, says JM Finanncial

Russia formulations business contributes only about 11-12% of group revenues, says the report

The JM Financial Institutional Securities Limited has termed 6 per cent fall in Dr Reddy's Laboratories Limited stock price is a clear over-reaction given the size of the company's Russia formulations business in comparison to its overall global generics revenues.

"Russia formulations business contributes only about 11-12 per cent of group revenues. The EBITDA contribution will be even lower given that Russia's margins will be lower than the US and India formulations business in our view," Anmol Ganjoo and Kunal Randeria of JM Financial said in their report.

Dr Reddy's share price fell in the light of a sharp intraday fall of Rouble price under the impact of sliding international oil prices recently. The assumption being that the company's revenues will be hit due to the devaluation of Russian currency.

According to the report, the analysts see 2-5 per cent negative impact to FY 16/17 EPS, the higher end of which assumes the resultant dollar appreciation verses Indian Rupee.

Dr Reddy's has indicated in he past that while currency volatility is a risk in Russia, the growth momentum is intact in Russia and was pretty confident of on its prospects. "While we don't see the demand environment for Russia get impacted yet but INR realisations will definitely come off,"the report said.