Dr Reddy's Labs gains 3% on successful USFDA audit of Srikakulum plant

Shares of Dr. Reddy’s Laboratories were up 3% at Rs 2,546 per share on BSE in intra-day trade as  United States Food and Drug Administration (USFDA) has completed the audit of Andhra Pradesh plant with zero observations.

“The audit of our Formulations Srikakulum Plant (SEZ) Unit II, Andhra Pradesh by the USFDA, has been completed today with zero observations,” Dr. Reddy’s Laboratories said on Friday after market hours.

The stock of the pharmaceutical company was trading higher for the sixth straight day, up 6% from Rs 2,407 per share on November 9, as compared to 1% rise in the S&P BSE Sensex. It has corrected 8% from its recent high of Rs 2,610 on October 30, after the company said that the US health regulator issued eight observations after inspecting its formulations plant at Duvvada, Visakhapatnam.

The brokerage firm Motilal Oswal Securities maintains ‘Neutral’ rating as delay in the resolution of regulatory issues and subsequent launches remain the key overhang.

Morgan Stanley has ‘Overweight’ on the stock with 12-month target price of Rs 2,850 per share.

“Dr. Reddy’s earnings over the last year have been adversely impacted by competition in some key products and delay in approvals due to a Warning Letter. We are expecting resolution of outstanding regulatory issues and stabilization in US revenue trend with signs of earnings improvement likely to be a key catalyst for the stock,” the brokerage firm said in a report dated October 30, 2018.

“We do expect a pick-up in launches over the next few quarters (not dependent on facilities under the Warning Letter) including some complex approvals in FY20. We believe growth recovery in the US, coupled with benefit from cost optimization efforts, should improve earnings trajectory over the medium term. Dr. Reddy’s approval and filings for complex generics underline the company’s focus on the transition to growth driven by its niche product portfolio in the US supporting medium-term growth,” it added.

At 11:21 am, the stock was trading 2% higher at Rs 2,517 on the BSE, as compared to 0.33% rise in the benchmark index. A combined 541,453 equity shares changed hands on the counter on the BSE and NSE so far.