According to Brokerages, Shares of Dr Reddy’s Laboratories (DRL) rose 10.36 percent to close at Rs. 5,326.70 on the BSE on September 18th. Investors lapped the stock after the company settled a patent lawsuit with Celgene, a US-based Bristol-Myers Squibb’s unit on cancer treatment Revlimid.
“In the settlement of all exceptional claims in the litigation, Celgene agreed to license Dr Reddy’s Labs to sell generic lenalidomide capsules. In limited quantities in the U.S. from a confidential date after March 2022,” the regulatory filing said on September 17th.
These pharma heavyweight shares are in the eyes of investors for good reasons.
In fact, the stock has been well lit throughout the year, so far it has risen over 85 percent in the 2020 calendar year, while the Sensex benchmark is still down 6 percent.
This is a stellar return to the stock that weakened the Sensex in the previous year.
Data from Ace Equity shows that the stock has outperformed the Sensex in the last 7 years (including 2020 so far).
Further upside possible
While investors gung-ho about the stock’s stellar returns, some brokerages believe that the firm’s prospects are bright and that the stock will grow further in the coming days due to the firm’s strong FCF production and healthy balance sheet.
Credit Suisse, a global brokerage firm, has a ‘per taper form’ rating on the stock, which raises the stock’s target price from Rs. 5,100 to Rs. 5,750.
The World Brokerage Agency believes that Revlimid generic cash flows should be substantial ($ 700 million).
According to CNBC-TV18, Credit Suisse believes, Dr Reddy is one of only two players who can market Avigan in the US for COVID-19 treatment. In addition, the company will increase its stake in Suboxone with Innovator Guiding for less volume.
ICICI Direct has a ‘buy’ call
Domestic brokerage firm ICICI Direct has a ‘buy’ call on the stock with a target price of Rs. 5,710.
“We will buy and reach the target of Rs. 5,710, which is the original business value around of Rs. 5,200 (26 times FY22E EPS Rs. 200) + Rs. 510 per g N Revvimid’s NPV,” ICICI Direct said.
ICICI emphasizes that the outcome of the company’s Revlimid lawsuit is one of the things that can be monitored for DRL due to the sheer volume of product possibilities.
The brokerage believes that this product is likely to remain a limited competitive product.
“According to the agreement, DRL will be limited to single-digit market share in the first year, which we expect to grow to 12 percent in the last year (January 2026). With the confirmation and the launch of DRL Revlimid in October 2022, we expect NRPV to be Rs. 510 for DRL,” said ICICI Direct.
ICICI Direct, like most brokerages, is positive about the company, redistributing R&D costs toward the global generics, biosimilars, and PSAI segment, and managing management simultaneously across geographies and segments.
ICICI believes that the efforts made over the past few quarters have been consistent and support sustainable performances.
Emkay Global has made a ‘hold’ call
Brokerage firm Emkay Global has made a ‘hold’ call on the stock with a target price of Rs. 5,325.
“We have included the Vescepa experiment in our estimates from FY22. (There is currently a shortage of APIs on the market, so the experiment is 1-2 quarters away). It adds 9% / 7% to our FY22 / 23E, EPS. This stock is 25 times September 2022 EPS and adds Rs. 333 NPV to reach the target of Rs. 5,325,” Emakay said.
However, some brokerages believe that the value of the stock could puncture its rally.
Still being ‘sell’ call to Kotak Institutional Equities
The stock is still being ‘sell’ call to Kotak Institutional Equities with a target price of Rs. 3,700.
“Although we recognize the positive developments around the US pipeline products. Such as Ciprodex, Vascepa, Kuvan and now Revlimid, the losses for the US have been reduced,” Kotak said.