Dr. Reddy's Laboratories: Economic Factors Square Off To Reiterate Buy

Core Insights - Dr. Reddy's Laboratories Limited (NYSE: RDY) has seen a stock increase of 29% since the last publication, with a year-to-date gain of 20% [4] - The company benefits from multiple tailwinds, including strong Q1 FY'25 results and favorable legislative changes from the Affordable Prescriptions for Patients Act [4] - The stock is rated a buy due to its competitive advantages in the generics pharmaceutical sector, fair growth expectations, and intrinsic value estimated at approximately $107 per share [4][19] Q1 FY'25 Insights - The company generated approximately $921 million in revenue during Q1 FY'25, reflecting a 14% year-over-year increase, primarily driven by the generics business and contributions from Sanofi's vaccine portfolio [5] - EBITDA for the quarter was $259 million, up 1% year-over-year and 15% sequentially, with operating margins around 28%, down approximately 360 basis points year-over-year [5] Geographical Performance - U.S. generics sales reached $463 million, a 19% year-over-year increase, driven by volume growth and lower operating costs compared to peers [6] - European revenues were €59 million, up 4% year-over-year, supported by new product launches [6] - The Indian market grew by 15% year-over-year, aided by new vaccine revenues and product launches [6] Economic Contributions - The company operates on approximately $3.4 billion of capital, with around $2 billion tied up in working capital, earning returns of 20-25% on this capital [7] - The competitive advantage period (CAP) is estimated at 13 years, indicating a strong ability to generate economic profits [7] Valuation Insights - The market values RDY's operating assets at approximately $4 for every $1 invested, with economic profits reaching around $22 per share since December 2022 [10] - The stock trades at a fair multiple of 4x EVIC, with expectations of $9.8 billion in economic profit in the foreseeable future [14] - Conservative estimates suggest a potential share price exceeding $100 based on future growth and capital redeployment [18] Future Projections - Sales are projected to reach approximately $3.9 billion in FY'24 and $4.2 billion in FY'25, with continued growth expected from new product launches and market share gains [5][24] - Economic earnings are forecasted to increase steadily, with per-share earnings projected to rise from $2.43 in FY'24E to $2.74 in FY'28E [21]