Dr Reddy's Lab completes share buyback; stock hit seven-month high

The stock outperformed the market by surging 10% as compared to 0.17% rise in Sensex during past eight trading sessions.

Dr Reddy’s Laboratories has moved higher by 1.6% to Rs 3,318, its highest level since November 2015, after the pharmaceutical major on Tuesday announced closure of its share buyback programme.

“The company has bought back nearly 5.08 million equity shares for Rs 1,569.41 crore as part of a ‘share buyback’ offer launched earlier this year. The company bought back shares at an average price of Rs 3,090.92 per share,” Dr Reddy’s Laboratories said in a regulatory filing.

In February this year, the company’s board had approved a proposal to buyback shares, subject to the approval of shareholders, for an aggregate of amount not exceeding Rs.1,569.4 crore at a price not more than Rs 3,500 per share under the open market route.

The company said, post buyback, the promoters holding in the company increased to 26.37% from 25.58%, while public holding declined to 73.63% from 74.42%.

In past eight trading sessions, the stock has outperformed the market by surging 10% as compared to a marginal 0.17% rise in the S&P BSE Sensex.

JP Morgan has ‘overweight’ on the stock with a price target of Rs 3,600.

“We believe that the risks to Dr. Reddy’s US base business in Q1FY17 (competition in key products, remediation costs, delay in approvals) and margin pressure are well known. However, we believe the earnings trajectory should improve as we move into the September-December quarter,” the brokerage firm said in a report dated June 10, 2016.

Dr. Reddy’s expects completion of remediation in its impacted facilities by end of quarter, after which it will seek an audience with the USFDA followed by a request for re-inspection. In its last conference call, management also indicated a ‘brisk pace’ of launches in 2HFY17, which is not linked to the regulatory status of the three facilities under the Warning Letter. We see these new approval and launches as a key trigger for the stock over the next 6-9 months, added report.

At 10:45 AM, the stock was up 1.4% at Rs 3,311 on the BSE as compared to 0.57% rise in the benchmark index. A combined 202,453 shares changed hands on the counter on the BSE and NSE so far.