Dr Reddy's Labs hits over 4-year high, surges 62% from March low

Analysts believe Dr Reddy's US business, which has been facing revenue pressure, is likely to rebound with new product launches and the gradual normalization of price erosion in its key products.

Shares of Dr Reddy’s Laboratories hit an over four-year high of Rs 4,036, up 5 per cent on the BSE on Tuesday in an otherwise weak market. The stock of pharmaceutical company was trading at its highest level since November 2015. It hit an all-time high of Rs 4,383 on October 20, 2015.

With today’s rally, the share price of Dr Reddy’s Laboratories has surged 62 per cent from its previous month low of Rs 2,498,  touched on March 19, 2020 in the intra-day trade.

Analysts remain confident on the strong demand scenario for pharma sector from both domestic and export markets. They also believe that the disruptions due to the outbreak of Covid-19 would not be meaningful from full year earnings' perspective as the benefits of weaker currency could bridge the gap.

For January-March quarter (Q4FY20), analysts at Kotak Securities expects Dr Reddy’s US business to bounce back to US$ 235 million (+US$13 million quarter on quarter), given the benefit of recent launches. The brokerage firm expects the company’s EBITDA margins at 21.7 per cent, and expects adjusted EPS to grow 46 per cent year-on-year (YoY).

Analysts at Anand Rathi Share and Stock Brokers believe Dr Reddy’s US business which has been facing revenue pressure, is likely to rebound with new product launches and gradual normalization of price erosion in its key products. Also, the company, it says, should continue to witness strong growth in India, emerging markets, Europe and PSAI business driven by volume growth, new launches and improving realizations.

“While the deal with Wockhardt strengthens India business, other strategic initiatives of the company focused on building healthy product pipeline, improving efficiency and cost controls, divesting non-core assets and engaging with USFDA to resolve outstanding concerns, create further optimism,” the brokerage firm said in a stock update.