Dr Reddy's Labs extends gains for second straight day, hits 33-month high

Shares of Dr Reddy’s Laboratories hit an over two-year high of Rs 2,971, up 2 per cent on Tuesday, extending its previous day’s 2 per cent gain on the BSE after the drug maker launched Doxercalciferol injection in the US market. The stock was trading at its highest level since February 13, 2017.

“It is the therapeutic generic equivalent of Hectorol (doxercalciferol) injection approved by the US Food and Drug Administration (USFDA),” Dr Reddy’s said in press release.

The Hectorol Single-Dose Vials and Multiple-Dose Vials brand and generics had US sales of approximately $138 million for the most recent 12 months, ending in September 2019 according to IQVIA Health.

Analysts at SBICAP Securities upgraded the stock with ‘buy’ rating and target price of Rs 3,200 per share.

“In the last 1 year, the company has seen a seismic change with 18 of its 25 key managers being replaced. The new management’s decisive actions such as divestment of non-core assets, trimming of workforce, and rationalization of R&D have improved margins and return ratios. We believe that the journey is far from over and estimate that operating margin will improve by around 500bps and RoCE will double to 17 per cent through FY22e,” the brokerage firm said in a report.

The company has multiple levers to further improve its operating margin, including cost-improvement programs, increase in sales force productivity, tight control on SG&A and improvement in R&D productivity, it said.

Analysts at JP Morgan have ‘overweight’ rating on the stock with March 2020 target price of Rs 3,150 per share.

“Dr. Reddy’s US business has bottomed out with improving launch momentum to drive higher revenue gradually. Further, its focus on ex-US business seems to be showing results with strong growth in Europe, EMs & PSAI. The company has also shifted its specialty strategy to focus on its core R&D capabilities rather than commercialization in the US that will help improve margins from 2HFY20. Therefore, we see the growth recovery in the US, operating leverage from EM/India growth and cost saving from PP front-end exit to improve the earnings trajectory over the medium-term,” the foreign brokerage firm said.

At 11:15 am, Dr Reddy’s Labs was trading 1 per cent higher at Rs 2,954 on the BSE, as compared to 0.11 per cent rise in the S&P BSE Sensex. The counter has seen huge trading volumes with a combined 455,623 shares changing hands on the BSE and NSE so far.

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