Research: ABN Amro
Rating: Buy
CMP: Rs 633
ABN Amro maintains its 'buy' rating on Dr Reddy's Laboratories (DRL). DRL reported lower-than-expected sales on lower Ondansetron sales and supply constraints in contract manufacturing. DRL's subsidiary, betapharm, returned to its usual sales levels at $51 million, and lower selling, general & administrative (SGA) expenses led to better-than-expected operating margin adjusted for one-off opportunities.
The surprise was the 600 bps improvement in betapharm's active pharmaceutical ingredients (API) margins, which the management attributed to a better product mix, citing Amlodipine Besylate as one of the key products being sold. The key R&D product, Balaglitazone, is in Phase III trials and can provide news flow that may increase its valuation, given the recent listing of Sun Pharma's R&D business at $500 million.
ABN Amro values DRL's Balaglitazone at $100 million (Rs 24/share) and cut its FY08 earnings forecast to reflect the lower-than-expected Q1 FY08 result. ABN Amro also lowers its profitability assumption for the contract pharma business, but leaves API profitability untouched.
Rating: Buy
CMP: Rs 633
ABN Amro maintains its 'buy' rating on Dr Reddy's Laboratories (DRL). DRL reported lower-than-expected sales on lower Ondansetron sales and supply constraints in contract manufacturing. DRL's subsidiary, betapharm, returned to its usual sales levels at $51 million, and lower selling, general & administrative (SGA) expenses led to better-than-expected operating margin adjusted for one-off opportunities.
The surprise was the 600 bps improvement in betapharm's active pharmaceutical ingredients (API) margins, which the management attributed to a better product mix, citing Amlodipine Besylate as one of the key products being sold. The key R&D product, Balaglitazone, is in Phase III trials and can provide news flow that may increase its valuation, given the recent listing of Sun Pharma's R&D business at $500 million.
ABN Amro values DRL's Balaglitazone at $100 million (Rs 24/share) and cut its FY08 earnings forecast to reflect the lower-than-expected Q1 FY08 result. ABN Amro also lowers its profitability assumption for the contract pharma business, but leaves API profitability untouched.
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