Dr Reddy's gains 6% in two days post clarification on regulatory issues

Dr Reddy’s Laboratories moved higher by 3% to Rs 2,473, extending its Thursday’s 3% gain on BSE, after the company clarified that it has no updates regarding the establishment inspection report (EIR) for Duvvada facility. The stock is trading at its highest level since November 21, 2017 on BSE.

On Wednesday, January 3, the stock had dipped 3% on the buzz of issues raised in EIR for Duvvada plant.

"The company has already intimated the stock exchanges on November 21, 2017 regarding the updated status of US Food and Drug Administration (USFDA) audit of our formulations manufacturing facility at Duvvada, Visakhapatnam, Andhra Pradesh and has no further update." Dr Reddy’s said in clarification of news report.

Further, the movement in price of company's scrip is completely market driven and hence the company has no comments to offer on share price movement, it added.

Meanwhile, Dr Reddy’s on Monday, January 2, 2018 had informed the stock exchanges that a meeting of board of directors of the company will be held on Thursday, January 25, 2018, to consider the financial results of the company for the quarter and nine months ended December 31, 2017.

Analysts at JP Morgan have set price target of Rs 3,000 for Dr Reddy’s as the brokerage firm sees better visibility on earnings improvement over the next year from certain large limited-competition opportunities.

“While there is risk associated with some (litigation, approval), we assume a 6-9 month delay in such cases to factor-in these risks partly. We believe the FDA’s focus on prioritizing approval in off-patent generic product with no/<3 players provides some assurance on Dr Reddy’s chances of getting approval for some these large products over the next 12-15 months,” the brokerage firm said in report.

While there is risk of competition in its large products, we have factored this in our higher-than-average erosion (14-18% over FY18/19) with monetization of the pipeline being a key offset. We believe the stock provides an attractive opportunity to focus on upside from news flow on the regulatory front, litigation and monetization of its limited competition pipeline. Further, valuations (17x FY19 P/E) factor in the uncertain environment in the US and see higher likelihood of Dr Reddy’s earnings bottoming out before its peers, added report.


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