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gRevlimid launch propels Dr Reddy's Q2 numbers; epitomises complex product focus

ICICIdirect Research 03 Nov 2022 DISCLAIMER

What's buzzing 

Dr Reddy's revenues were propelled by the launch of a complex blood cancer drug in the US gRevlimid (lenalidomide) and better-than-expected Russia sales on account of favourable currency impact and new launches even as India was flatter due to high Covid base effect. 


Revenues grew 9.4% YoY to Rs 6331 crore, mainly driven by growth in the US, in general, and gRevlimid, in particular, besides favourable currency impact and some other new launches. Gross margins increased ~586 bps over the previous year and ~735 bps sequentially, mainly driven by product mix (including new products), accruals related to production linked incentive scheme, which was partly offset by price erosion and provision made on inventory for Covid products. EBITDA margins grew 649 bps YoY to 30%. Adjusted PAT increased 13.3% YoY to Rs 1100 crore. 

Our Perspective 

Dr Reddy’s has delivered a robust performance this quarter on the back of launch of gRevlimid and the numbers are not one-off. We expect revenues from gRevlimid in the coming quarters albeit with lower intensity. We believe, in the near term, key launches in complex generics (guidance for 25 launches in FY23) is likely to weather persisting price erosion in US. For Indian markets, we believe ramp-up of acquired assets and faster integration to increase base business. For Emerging markets, new launches are expected to drive growth. Dr Reddy’s aim to backward integrate 70% molecules is likely to provide benefit on the gross margins front. The company’s philosophy of targeting complex products in the US and simultaneous launches across major geographies along with cost rationalisation is likely to improve the margin profile. We value Dr Reddy's at Rs 5215 i.e. 25x FY24E EPS of Rs 202.4+ NPV of Rs 154 for gRevlimid.

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