2013-01-08 500124=in (Ambit Capital) Dr Reddy's Labs (BUY, 18% Upside)_ the Strong Gets Stronger -...

7/29/2019 2013-01-08 500124=in (Ambit Capital) Dr Reddy's Labs (BUY, 18% Upside)_ the Strong Gets Stronger - Initiation.61911183

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Pharmaceuticals January 08, 2013

Dr Reddys LabsBloomberg: DRRD IN EQUITYReuters: REDY.BO

Accounting: AMBERPredictability: AMBEREarnings Momentum: GREEN

Ambit Capital and / or its affiliates do and seek to do business including investment banking with companies covered in its research reports. As a result, investors should be aware that Ambit

Capital may have a conflict of interest that could affect the objectivity of this report. Investors should not consider this report as the only factor in making their investment decision.

Please refer to the Disclaimers at the end of this Report.

BU

Key financials

Year to March FY11 FY12 FY13E FY14E FY15E

Operating Income (`mn) 75,289 97,139 113,443 124,046 141,027

EBITDA (`mn) 16,258 24,143 26,039 27,428 31,147

EBITDA margin (%) 21.6 24.9 23.0 22.1 22.1

EPS (`) 65.3 85.9 97.9 104.0 122.0

BPS (`) 271.9 338.8 414.7 498.3 593.8

RoE (%) 25.0 28.3 26.1 22.9 22.4

P/E (x) 28.9 22.0 19.3 18.1 15.5

Source: Company, Ambit Capital research

INITIATING COVERAGE

Jatin Kotian

Tel: +91 22 3043 [email protected]

Ritu Modi

Tel: +91 22 3043 [email protected]

Recommendation BUY

CMP: `1,888

Target Price (12-month): `2,230Upside (%) 18

EPS (FY14): `104

Variance from consensus (%) (2)

Stock Information

Mkt cap: `320bn/US$5,818mn

52-wk H/L: `1,916/1,526

3M ADV: `603mn/US$11mn

Beta: 0.7

BSE Sensex: 19,691

Nifty: 5,988

Stock Performance (%)

1M 3M 12M YTD

Absolute 2.6 11.2 17.6 3.2

Rel. to Sensex 1.2 7.2 (6.5) 1.8

Performance

15,000

16,000

17,000

18,000

19,000

20,000

Jan-1

2

Fe

b-

12

Apr-

12

May-

12

Jun-1

2

Aug-

12

Sep-1

2

Nov-

12

Dec-

12

1500

1600

1700

1800

1900

2000

Sensex Dr. Reddy's

1-yr fwd EV/EBITDA

11

12

13

14

15

16

17

18

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

Source: Bloomberg, Ambit Capital research

The strong gets strongerOpportunities in Dr Reddys (DRLs) US pipeline combined with arecovery in the hitherto slow growing Indian business leaves DRL wellpositioned over the next two years. With free cash flow to remainstrong between FY12-15 inspite of heavy capex, DRL looks likely to bea debt free business by the end of FY14. Inspite of diminishing debt,DRL is likely to maintain premium RoEs vis a vis peers (25% vs 23%).

We initiate coverage with a BUY stance and a valuation of `2,230, 18%upside.

Competitive position: STRONG Changes to this position: POSITIVE

FY14 - a transitional year for the US generics business: Fewer patentexpiries and high revenue base seem likely to lead to muted revenue growth

for DRL in FY14 (6% vs. 14% in FY13). We draw comfort from the fact thatDRLs filing profile indicates potential opportunities (with clarity to emerge onlyin FY14). A few ambiguities around key assets, including complex generics andBiosimilars, could be clarified in FY14.

Emerging markets - a mixed bag: Whilst the CIS market would slow down(12% revenue growth in FY14 vs 18% in FY13) given the regulatory changesand the base effect, revenue growth would remain healthy. The Indianbusiness should see a steady recovery (~13% revenue growth), with theproportion of slow-moving categories further declining, although DRLs overallgrowth would lag industry growth (running at around 14 %).

Strong FCF and return ratios despite high capex: FCF to remain strongthrough FY12-15 (between ` 12-15 bn p.a.) despite a high yearly capex run

rate of ~`7bn. In the absence of any large acquisitions, we expect DRL to belargely debt-free by FY14-end. DRLs return ratios have remained higher thanits peers (25% RoE vs 23% for peers) despite a sub-par Indian business andinspite of greater dependence on the highly competitive US generics space.The firms premium RoEs are driven by higher focus on limited competitionproducts and strong presence in the high margin CIS region.

Valuation: Our DCF valuation for DRL has explicit forecasts until FY24 andthen estimates the residual value by applying a terminal growth rate of 4%.Using a risk-free rate of 8%, market risk premium of 7% and three-yearadjusted beta of 0.7x, we arrive at a cost of equity of 12.9%. A target long-term debt-to-capital-employed of 10% and post-tax cost of debt of 4% givesan overall WACC of 12%. Using this discount rate, our DCF model values DRL

at `2,230, implying an FY14 P/E of 21.4x (a premium of 5% to peers),EV/EBITDA of 14.1x (a premium of 3% to peers) and 18% upside. We initiatecoverage with a BUY stance.

Key risks: The key risks for DRL stems from: (a) changes in regulationsgoverning foreign players in the CIS region, (b) delays in progress in thebiosimilar pipeline, and (c) a growth slowdown in the Indian pharma market.


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Dr Reddys Labs

Ambit Capital Pvt Ltd 2

CONTENTSSnapshot of Company Financials...3

Company overview 4

SWOT Analysis5

Investment summary. 6

Strong traction in emerging markets.9

Biosimilars offer further growth opportunities.. 15

US Time for a breather. 16

Key assumptions and estimates18

Ambit vs consensus. 19

Key risks.20

Catalysts 21

Valuation and recommendation.. 22

Cross-cycle valuation. 23

Relative valuation of Indian pharma companies. 23

Accounting analysis 24


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Dr Reddys Labs


Snapshot of Company Financials

Profit and LossYear to March (` mn) FY12 FY13E FY14ENet revenues 97,139 113,443 124,046

EBITDA 24,143 26,039 27,428

Depreciation 5,214 5,721 6,222

Interest expense 1,067 304 618Adjusted PBT 18,763 20,887 22,071

Tax 4,204 4,201 4,427

Adjusted net profit 14,613 16,657 17,706

Reported net profit 14,262 16,100 17,706

Profit and Loss Ratios

EBITDA Margin (%) 24.9 23.0 22.1

Net profit margin (%) 15.0 14.7 14.3

EV/ EBITDA (x) 13.8 12.6 11.9

P/E on adjusted basis (x) 22.0 19.3 18.1

EV/Sales (x) 3.4 2.9 2.7

Company Background

Dr Reddys Laboratories (DRL) is Indias second-largestpharmaceutical company in terms of revenues. The companybegan its business as a bulk drugs player and rapidly moved

up the value chain to become a major generic-formulationscompany with global operations. The companys productportfolio comprises a number of therapeutic categories and itmarkets products in more than 100 countries; DRLs focusmarkets include the US, Europe, India and Russia. Thecompany has set itself an internal revenue target of US$2.5-2.7bn. The vertical integration through its PharmaceuticalsServices and Active Ingredients (PSAI) business has alsohelped DRL.

Balance Sheet (consolidated)Year to March (` mn) FY12 FY13E FY14ETotal Assets 117,505 133,469 145,155

Fixed Assets 46,775 50,574 50,852

Current Assets 59,589 71,652 82,997

Investments 11,141 11,243 11,305

Total Liabilities 117,505 133,469 145,155

Total networth 57,444 70,324 84,489

Total Debt 34,033 34,033 28,939

Current Liabilities 26,861 29,945 32,560

Deferred Tax Liability (833) (833) (833)

Balance Sheet ratios

RoCE 19.2 17.3 16.8

RoE 28.3 26.1 22.9Gross Debt/Equity (x) 0.6 0.5 0.3

Net debt (cash)/ Equity (x) 0.2 0.1 (0.1)

P/B (x) 5.6 4.6 3.8

Cash Flow (consolidated)Year to March (` mn) FY12 FY13E FY14EPAT 14,262 16,100 17,706

Depreciation 5,214 5,721 6,222

Tax (345) - -

Net Working Capital (8,960) (183) (2,571)

CFO 16,150 20,967 20,431

Capital Expenditure (8,421) (9,520) (6,500)

Investment (10,576) - -

CFI (18,665) (8,648) (5,017)

Issuance of Equity 6 (0) (0)

Inc/Dec in Borrowings 7,054 - (5,094)

Net Dividends (2,216) (3,220) (3,541)

Interest paid (1,109) (304) (618)CFF 3,735 (3,524) (9,253)

Net change in cash 1,220 8,795 6,161

FCF 7,729 11,447 13,931

Strong FCF despite high capex DRL has witnessed significant de-rating in the past year

(5,000)

-

5,000

10,000

15,000

20,000

25,000

FY09

FY10

FY11

FY12

FY13E

FY14E

FY15E

CFO FCF

Rs mn

15

17

19

21

23

25

27

29

31

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Jun-12

Sep-12

Dec-12

DRRD 1-yr fwd P/E Avg 1-yr fwd P/E

Source: Bloomberg, Company, Ambit Capital research


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Dr Reddys Labs


Company overviewExhibit 1:Revenue breakup for DRL

Revenues (` mn) % contribution to revenues CAGR (%)Business Segment

FY10 FY11 FY12 FY10 FY11 FY124-yr

(FY08-12)3-yr

(FY09-12)FY12

growth

Generics 48,606 53,340 70,243 69.2 71.4 72.6 20.9 12.2 31.7North America 16,817 18,996 31,889 23.9 25.4 33.0 41.9 17.1 67.9

Europe 9,638 8,431 8,259 13.7 11.3 8.5 (5.2) (11.4) (2.0)

India 10,158 11,690 12,931 14.5 15.7 13.4 12.5 15.1 10.6

Russia 7,232 8,942 11,024 10.3 12.0 11.4 28.3 23.8 23.3

CIS 1,887 1,916 2,236 2.7 2.6 2.3 11.2 7.1 16.7

Others 2,874 3,365 3,904 4.1 4.5 4.0 34.4 25.8 16.0

PSAI* 20,404 19,648 23,813 29.0 26.3 24.6 9.4 8.3 21.2

North America 3,673 3,170 4,272 5.2 4.2 4.4 6.3 3.3 34.8

Europe 6,652 7,020 8,424 9.5 9.4 8.7 10.5 11.0 20.0

India 2,646 2,619 3,586 3.8 3.5 3.7 11.1 14.6 36.9

Others 7,433 6,839 7,531 10.6 9.2 7.8 9.3 5.9 10.1

Proprietary Products 1,267 1,705 2,682 1.8 2.3 2.8 51.3 44.3 57.3

Total 70,277 74,693 96,738 100.0 100.0 100.0 17.9 11.7 29.5

Source: Company, Ambit Capital research. * PSAI stands for Pharmaceutical Services and Active Ingredients.

Exhibit 2:Event CalendarYear Key events

1984 DRL established by Mr K Anji Reddy

1986 Goes public and enters international markets with exports of Methyldopa

1987 Obtains its first USFDA approval for Ibuprofen API

1988 Acquires Benzex Laboratories1991 Formulation exports to Russia commence

1999 Acquires American Remedies in India

2000 Establishes Reddy US Therapeutics Inc in the US

2001Obtains first-ever 180-day market exclusivity for a generic drug (Fluoxetine 40mg cap) in theUS

2005 Acquires Roche's API business in Mexico

2006 Acquires Betapharm in Germany

2007 Launches Reditux (Rituximab) the world's first monoclonal antibody biosimilar

Acquires BASFs formulation manufacturing unit at Shreveport, Lousiana, US2008

Acquires DowPharmas small molecules business at Mirfield & Cambridge, UK

2009 Enters into a strategic alliance with GSK for emerging markets2010 Launches darbepoetin alfa in India under the brand name Cresp

GSK and DRL agree to the sale of US penicillin facility and products2011

Enters into a JV with FUJIFILM for promoting generic drugs in Japan

Crosses US$2bn in revenues2012

Signs deal with Merck Serono to develop and commercialise biosimilars globally



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Dr Reddys Labs


Exhibit 3:SWOT analysis for DRLStrengths Weaknesses

DRL enjoys a strong formulation and drug development capability,which is reflected in the wide number of complex APIs and thesteadily expanding portfolio of biogenerics.

The company has been able to develop a broad generic portfolio inthe US market (DRLs largest geography) to capitalise on thesignificant patent expiries in the past two years.

In India, the focus on the fast-growing oncology and biogenericssegment has clearly given the company an early mover advantage In the CIS markets, DRL has been able to capitalise on the strong

growth rates in recent times by investing in the geography duringdownturns when most Indian companies scaled back theiroperations

This has enabled the company to establish its brands and in turnenjoy higher-than-market growth rates, because the OTC businesshas largely helped offset any impact of price caps in theprescription business

The company has a strong financial profile with low leverage andstrong FCF generation, which clearly reflects the strength of theunderlying businesses and also enables the company to sustaininvestments in long gestation technologies/segments.

In India, DRL has been steadily losing market share, because thecompany has been unable to offset the slower growth in itstraditional portfolio completely.

Hence, DRL has been unable to fully leverage its strong recall andacceptability amongst medical practitioners to build a presence inthe faster-growing therapeutic segments (diabetes, CNS, etc) in

India. In CIS region, DRLs current brands are largely in house brands.However, the company will have to enlarge the basket of brandsto expand the business further. Whilst the company has in-licenced brands, these are yet to emerge as key growth drivers.

Opportunities Threats

In the CIS region, the next stage of growth for the company is likelyto emerge from more complex products. The companys plans tolaunch biogenerics could be a key growth driver in the future.

The new drug pricing regime would have a minimal impact onDRLs earnings. Potential for industry reconsolidation could enableDRL to claw back some of the lost market share.

In the US generics space, whilst near-term growth appears muted,we see several interesting opportunities beyond FY14.

In Biosimilars DRL has a head start over most Indian pharmamajors. With sales in several emerging markets including India andtie up with Merck for product development for developed markets,DRL could have a significant first mover advantage in the space.

The key threat in CIS remains regulatory changes and theirimpact on product pricing. Proposed regulations to encourageindigenisation and local manufacturing are risks, however webelieve they are surmountable.

The proposed drug price changes in India could have an impacton reference listed prices in export markets.

Whilst the domestic market remains a source for significant long-term growth, given the slowdown in GDP growth, a lower near-term growth in formulations is inevitable. Hence, managinggrowth in such an environment would be a challenge for theentire Indian pharma industry and more so for DRL

Source: Company, Industry, Ambit Capital research


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Dr Reddys Labs


Investment summary

FY14, a transitional year for DRLs US generics business

The US market is still DRLs key revenue driver, accounting for ~33% of overall

revenues in FY12. However, FY14 is likely to be a relatively muted year for the USgenerics business (6% in FY14 vs 14% in FY13) owing to the combined impact ofthe high base effect and lower number of patent expiries.

A significant number of products went off patent in the US generics space in FY12and FY13 (amounting to US$19.4bn and US$35.6bn, respectively). As a result,DRL enjoyed a revenue growth of 68% in FY12 in its US generic business, and weexpect revenue growth of 14% in FY13. The average market size of theaddressable products was also large at ~US$1.3bn in FY12 and ~US$1.9bn inFY13. On the other hand, a fewer number of drugs would go off patent in FY14,which coupled with the high competitive intensity would result in lower overall coreearnings growth for the year (13% in FY14 vs 42% in FY13).

However, despite a mellow FY14, we expect the year to be largely transitional,and we expect significantly better growth from FY15 onwards (16% in FY15 vs 6%in FY14). The reason for our optimism for FY15 and beyond stems from ouranalysis of DRLs DMF (Drug Master Filing) profile. Whilst the known launches inFY15 amount to ten products with a value of US$9.9bn, we see potential for afurther number of interesting opportunities from other product filings as well (referto Exhibit 26 on page 17). In addition, we are also likely to see more clarity onproduct filings from the proposed acquisition of OctoPlus, an injectable technologycompany based in the Netherlands. We expect further development in DRLsbiogenerics business to come from: (1) more filings in the CIS region (primarilyRussia); and (2) progress on the tie-up with Merck for their biogenerics partnershipfor developed markets. All of these could be important stock catalysts. The visibility

on the biogenerics business would improve on getting better clarity on futurepathways.

Earnings growth and margins could be muted in FY14; expect a stepup from FY15 onwards

We expect FY14 to be a transitional year for the business, and we expect growth topick up only from FY15 onwards (revenue growth: FY12 22%, FY13E 21%, FY14E11%, FY15E 15%). Thus, we model 15% revenue CAGR over FY12-15E and 26%earnings growth over the same period. These assumptions exclude the impact ofone-offs and exclusivities.

A slowdown in the US generics business in FY14 would result in moderate overallrevenue growth of 11%, which is likely to increase to 15% in FY15 on the back ofinteresting opportunities from other product filings. The domestic market, after amuted FY12, is likely to stabilise in FY14 and FY15 (Indian revenue growth: FY1211%, FY13E 13%, FY14E 13%, FY15E 14%) and record 13% CAGR over FY12-15Eas the proportion of slower-moving categories further declines from current levelof 24%. In the CIS business, we assume growth rates to slow down to ~12-14%over FY13-15E, owing to the high base and steep growth in recent years.

We expect core earnings growth of 42% in FY13, which is likely to taper down to13% in FY14 mainly on account of lower product launches during the year andalso due to a high base effect. As highlighted earlier, we believe FY15 is likely topresent interesting opportunities for DRL from other product filings (25% coreearnings growth).


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Dr Reddys Labs


Exhibit 4:After a muted FY14, DRLs margins to pick up

-

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

FY10

FY11

FY12

FY13E

FY14E

FY15E

20.0

21.0

22.0

23.0

24.0

25.0

26.0

Global Generics PSAI

Others EBITDA margin - RHS

Rs mn %


Exhibit 5:New product launches and opportunities willlead to earnings growth for DRL in FY15

-10%

0%

10%

20%

30%

40%

50%

60%

FY10

FY11

FY12

FY13E

FY14E

FY15E

Core EBITDA growth Core EPS growth

Source: Company, Ambit Capital research. Note: Core growth excludesexclusivities and one-offs

Strong financial profile

1) A problem of plenty: DRL enjoys a strong balance sheet and cash flowgeneration. Overall debt levels of the company continue to be at manageablelevels, with overall debt of`32bn and net debt:equity of 0.2x as at end-FY12. Thecompany has achieved a comfortable leverage level despite high capex intensity inrecent years (overall capex of `11.5bn in FY11 and `8.5bn in FY12, includingsmaller strategic acquisitions made during these years). Going ahead, capexintensity is likely to be high (~`7bn annually), partly owing to DRLs focus on thebiogenerics business (which has a long gestation period); however, we expectoverall debt levels to moderate further with strong FCF generation of`12bn-15bn

annually over FY13-15E. Given the significant cash flow generation, DRL mayundertake smaller-sized acquisitions to enter new geographies or to acquire newtechnologies. We currently do not model any such acquisitions in our estimates;however, given the strong financials we do not see this as a key risk.

Exhibit 6:Strong cash flow generation to continue for DRL` mn FY10 FY11 FY12 FY13E FY14E FY15ECFO 13,226 8,009 16,150 20,967 20,431 21,853

Net capex (4,222) (11,258) (8,421) (9,520) (6,500) (6,500)

FCF 9,004 (3,249) 7,729 11,447 13,931 15,353

Net debt 4,511 17,810 14,058 5,263 (5,992) (18,149)


2) Strong return ratios: Despite sub-industry growth rates in India, strongpresence in high margin Russian market coupled with higher growth from themore competitive US generics space, return ratios are high as compared to similarsized peers. This, we believe, is indicative of: (a) a strong underlying US genericbusiness characterised by higher focus on limited competition products, (b) tractionin the CIS region despite regulatory changes, and (c) good chemistry skillsresulting in a superior cost structure. Over FY09-12, DRLs RoAs and RoEs haveexpanded whilst key peers have seen either flat or falling return ratios.

Given the increasing investments in longer gestation businesses like biogenerics,we expect return ratios to moderate in the medium term. The scope for

improvement in return ratios would improve after FY14 along with theimprovement in the launch visibility on a few key filings.


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Dr Reddys Labs


Exhibit 7:DRLs RoEs have been amongst the best in theindustry

(%) FY10 FY11 FY12 FY13E FY14E FY15E

Cadila 35.7 36.9 27.5 28.6 27.3 28.6

Sun Pharma 18.2 21.0 23.9 23.9 22.9 20.9

Dr Reddy's 22.6 25.0 28.3 26.1 22.9 22.4

Lupin 34.1 29.5 23.8 23.8 25.3 23.0

Cipla 19.6 15.8 16.4 16.0 18.2 17.3

Source: Company, Ambit Capital research. Note: We have consideredBloomberg consensus estimates for all the companies except Cadila andDr Reddys for FY13, FY14 and FY15

Exhibit 8:DRLs RoAs to bottom out in FY14(%) FY10 FY11 FY12 FY13E FY14E FY15E

Cadila 18.5 22.2 15.3 15.6 16.6 19.1

Sun Pharma 17.5 19.6 22.0 24.6 23.3 19.1

Dr Reddy's 15.5 17.4 18.3 17.2 16.4 17.4

Lupin 20.5 20.2 16.5 14.4 14.8 13.9

Cipla 17.4 15.3 15.8 15.8 14.3 14.3

Source: Company, Ambit Capital research. Note: We have consideredBloomberg consensus estimates for all the companies except Cadila andDr Reddys for FY13, FY14 and FY15

Stock de-rating seems to be over

DRLs stock has underperformed its peers in the past few quarters, owing tocontinued concerns over the product launch profile beyond FY13 as well as the

flagging Indian formulations business. As a result, the stock has gradually de-rated(refer to Exhibit 9). Even whilst we factor in weaker earnings growth and grossmargin profile in FY14, we believe that earnings visibility in FY15 would besignificantly better on account of interesting opportunities from other productfilings. Furthermore, overall clarity on the timelines of a host of filings forcommercialisation would emerge over the next three quarters, which should alsohelp support earnings growth beyond FY15.

We also highlight the re-rating potential from the biogenerics business, which thecompany continues to identify as a key asset. Thus, whilst the biogenerics businessmay not emerge as a material earnings driver in the next two years, clarityespecially on the tie-up with Merck for the biogenerics portfolio is likely to help re-rate the stock.

Exhibit 9:DRLs 12-month stock price performance has lagged that of its peers

80

90

100

110

120

130

140

150

160

Jan-1

2

Fe

b-1

2

Mar-

12

Apr-

12

May-1

2

Jun-1

2

Jul-12

Aug-1

2

Sep-1

2

Oct-12

Nov-1

2

Dec-1

2

Jan-1

3

DRL

Cipla

Cadila

Sun

Lupin

Source: Bloomberg, Ambit Capital research. Note: We have indexed the stock prices for all the companiesindicated above to 100.


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Dr Reddys Labs


Strong traction in emerging marketsDRLs key revenue growth driver is its Emerging Market (EM) business, whichrecorded a sales CAGR of 19.5% as against the overall core sales CAGR of 17%over FY08-12. Beyond India, DRL has a presence in markets such as Venezuela,South Africa, Vietnam, and the CIS markets. Within emerging markets, the CIS

region has emerged as a strong business geography, accounting for 15% ofoverall core revenues in FY12. The Indian businesss share in overall revenues isdeclining, but this business remains an important market (14% of overall corerevenues in FY12 for the company). In recent years, DRL, like other major Indianpharma companies, has also restructured its operations in EMs by winding up itsoperations from a number of smaller countries so as to focus on the largermarkets within a particular region.

CIS region remains at the heart of DRLs EM business

The CIS region has been the key growth driver for DRL within the EM space.Hence, whilst the EM business recorded 19.5% revenue CAGR over FY08-12,revenues from Russia and the CIS expanded by 24.5% over the same period. The

company has traditionally had a strong presence in Russia and its neighbouringstates as compared to most other Indian companies. DRLs management hasmanaged to leverage this efficiently.

Exhibit 10:Snapshot of revenue growth across emerging marketsRevenues (` mn) % contribution to core revenues % CAGR

FY10 FY11 FY12 FY10 FY11 FY124-year

(FY08-12)3-year

(FY09-12)FY12

growth

Core branded generics 45,730 53,340 64,888 67.8 71.4 71.0 20.1 14.9 21.6

Emerging Markets 22,151 25,913 30,095 32.9 34.7 32.9 19.5 18.6 16.1

India 10,158 11,690 12,931 15.1 15.7 14.2 12.5 15.1 10.6

Russia and CIS 9,119 10,858 13,260 13.5 14.5 14.5 24.5 20.3 22.1

Russia 7,232 8,942 11,024 10.7 12.0 12.1 28.3 23.8 23.3

CIS (excl Russia) 1,887 1,916 2,236 2.8 2.6 2.4 11.2 7.1 16.7

RoW 2,874 3,365 3,904 4.3 4.5 4.3 34.4 25.8 16.0

Core revenues 67,401 74,693 91,383 100.0 100.0 100.0 17.3 13.6 22.3


Russia an attractive bet

Within the CIS region, Russia has emerged as the key market, accounting fornearly 83% of overall regional revenue. Russia is DRLs second-largest market afterthe US market. The company has consistently gained market share in the regionand was ranked 13th in FY12 by Pharmexpert, a market research company in

Russia. DRL has increasingly focused on the OTC market and is the market leaderin segments such as gastrointestinal and pain therapeutics, The company also hasa strong presence in segments such as anti-infectives, dermatology, cardiovascularmedicine and gynaecology. The company is also expanding its presence inoncology and is planning a launch of its biosimilar products.

Currently, the Russian pharma market is valued close to US$23bn and hasenjoyed a revenue CAGR of 21% over CY06-11. Although the market growth hasslowed in recent years (due to the imposition of price caps as a part of regulatorychanges), recent trends indicate a revival in growth because the impact of theprice caps has now been fully absorbed by the market. Independent externalresearch estimates show that the Russian pharmaceutical market is likely to record13% revenue CAGR to reach US$37bn in 2015. DRL is likely to benefit from key

government initiatives such as investment up to ~Euro11bn in public healthcare,improved qualitative pharmaceutical treatments, increasing personal incomeleading to rising healthcare expenditure.


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Dr Reddys Labs


Exhibit 11:After price cuts in 2010, the Russian pharmamarket has rebounded

0

100

200

300

400

500

600

700

800

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

RUR bn

CAGR of 21%

Source: Pharmstandard CY11 Annual report

Exhibit 12:Average retail prices for the OTC segmenthave increased the most despite structural changes

90

100

110

120

130

140

150

160

170

180

CY07 CY08 CY09 CY10 CY11

Non-VEP VEP OTC Prescription

Source: Industry. Note: Prices have been indexed to 100.

Increased focus on brands - DRLs strong competitive advantage

Russia is the largest OTC market (in the Central and European region) and hasregistered 23% growth in per capita OTC expenditure. Of the total Russianpharma market, a high proportion of sales happen through the OTC segment -50% by value and 73% by volume. DRL has gradually increased the OTC businessrevenue contribution to overall revenue in the Russian market from ~8% in FY08to nearly 30% in FY12, a CAGR of 77% over FY08-12. Revenue growth in the OTCbusiness in FY12 alone was at 39% (higher than the 24% growth registered in theoverall Russian business). DRLs focus on expanding its business through itsestablished brands in Russia has given the company a strong competitiveadvantage vs other Indian peers. Moreover, this has also enabled DRL to expandits footprint at a much faster pace than even local competitors. A comparison ofrevenue growth of local Russian peers (Pharmstandard and Gedeon Richter) withDRL indicate that DRLs growth in the Russian market has remained fairly stableand in most cases DRL has seen the highest growth rate amongst thesecompanies. Against this backdrop and the expected growth in the Russian pharmamarket, we believe DRLs revenues from the Russia business will record 13% CAGRover FY13-15E and its contribution to overall revenues will marginally increasefrom 14% in FY12 to 15% by FY15.

Exhibit 14:Russia/CIS growth for DRL has remainedrobust

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

1QFY11

2QFY11

3QFY11

4QFY11

1QFY12

2QFY12

3QFY12

4QFY12

1QFY13

2QFY13

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Russia/CIS sales (Rs mn) growth - RHS


Exhibit 15:Russia business growth to remain close to13% over FY13-15E

-

5,000

10,000

15,000

20,000

25,000

FY09

FY10

FY11

FY12

FY13E

FY14E

FY15E

0%

5%

10%

15%

20%

25%

30%

35%

40%

Formulations - Russia/CIS - LHSgrowthContribution to generics business

Rs mn


Exhibit 13:OTC contributionto overall Russia revenueshas increased substantially

0%

5%

10%

15%

20%

25%

30%

FY08 FY09 FY10 FY11 FY12

OTC portfolio contribution

Source: Company, Ambit Capitalresearch


11/31

Dr Reddys Labs


We have the following concerns about the CIS markets:

1.OTC products may not be entirely out of regulatory price capsCommentary from Pharmstandard, which is one of Russias largest domesticpharma companies, indicates that OTC products may not entirely be outside theambit of price caps imposed through the list of drugs under VEP (Vital andessential products). The Russian company highlighted that the prescription market

(Rx) drugs enjoyed a much higher growth than segments of the OTC market inCY11 especially when certain OTC were included in VEP schedules. Moreimportantly, it appears that due to the earlier round of price restrictions, the shareof the OTC segment is increasing, with the OTC market growing much faster thanthe overall pharma market. Against this backdrop, higher regulatory scrutiny ofpricing in the OTC market is a possibility.

2.MNCs dominate the local marketWhilst the Russian pharma market is extremely fragmented, with the top-10companies accounting for ~35% of the overall market in value terms, closerscrutiny indicates that most of the top-ten players are foreign companies. Hence,recent legislation has been enacted to encourage greater participation of domestic

companies and to enhance local pharmaceutical production. Whilst DRL has a tie-up with a local company for the manufacture of products, we believe that theoverall regulatory regime would increasingly favour domestic companies.


12/31

Dr Reddys Labs


India market growth Not as weak as perceived

The branded formulations business in India accounted for 13.6% of DRLs overall

revenues in 1HFY13 (vs 16% in FY08). Over FY09-12, the company recorded 15%revenue CAGR revenue from the segment. DRL has maintained its focus ontherapeutic segments such as gastro-intestinal, cardiovascular, pain management

and oncology. Over the past few years, DRLs revenue growth in India has laggedindustry growth, given that a large part of its product portfolio is focused on acutetherapies, which are expanding at a slower pace than the market.

Exhibit 17:DRLs growth has lagged domestic industry growth

2.1%

2.2%

2.3%

2.2%

2.3%

2.4%2.4%

0%

5%

10%

15%

20%

25%

FY06 FY07 FY08 FY09 FY10 FY11 FY12

2.0%

2.1%

2.2%

2.3%

2.4%

2.5%

Dr Reddy's India business growth Indian Pharma industry growthMarket share - RHS

Source: Industry, Company, Ambit Capital research

From 4QFY11, the domestic formulations business has seen single-digit growthowing to: (1) the decline in industry growth rates (particularly in the acute therapysegment), and (2) DRLs acute-dominated portfolio. However, from 4QFY12, DRLsdomestic growth rates have started to pick up, owing to the recovery in industrygrowth.

However, our analysis suggests that whilst DRLs overall growth rates may havelagged industry growth, DRLs growth outside of its traditional portfolio hasactually been in line with industry growth. In the Exhibit below, the others categoryi.e. largely the non-traditional portfolio (including new extensions of older brands)have enjoyed a CAGR of nearly 18% over FY07-12 as against an overall Indiaformulation growth of ~13% and industry growth of 14%.

Hence, we believe that even as the share of the older portfolio of drugs continuesto decline, from 37% in FY07 to 24% in FY12, DRLs overall growth rates shouldconverge closer to market rates.

Exhibit 18:Key brands have seen relatively subdued growth over the past several yearsRevenue (` mn) CAGR (%)

Brands CategoryMarketShare FY07 FY08 FY09 FY10 FY11 FY12

5-year(FY07-12)

3-year(FY09-12)

FY12growth

Omez Gastro 51% 830 763 776 928 1,065 1,089 5.6 12.0 2.3

Nise Pain 47% 873 626 605 690 700 596 (7.3) (0.5) (14.9)

StamloHyper-tension

19% 370 403 422 473 507 566 8.9 10.3 11.6

Atocor Cardio 5% 189 269 269 274 278 317 10.9 5.6 14.0

Razo Gastro 13% 211 214 214 247 285 306 7.7 12.7 7.4

Mintop Hairloss NA 119 150 172 196 209 225 13.6 9.4 7.7

Key brands 2,592 2,425 2,458 2,808 3,044 3,099 3.6 8.0 1.8

Others 4,372 5,635 6,020 7,350 8,646 9,832 17.6 17.8 13.7

India 6,964 8,060 8,478 10,158 11,690 12,931 13.2 15.1 10.6


Exhibit 16:Domestictherapeutic segmentsrevenue break-up (FY12)

Segment % contribution

Gastrointestinal 25

CVS 20

Pain 10

Anti -Infective 9

Derma 7

Anti -diabetic 6

Others 23

Source: Company, Ambit Capitalresearch


13/31

Dr Reddys Labs


We also expect the proposed new drug pricing policy of capping the prices ofdrugs based on a simple average method, to be potentially beneficial over thelonger run for established players like DRL. Our discussion with industry expertsindicates that unintentionally, the Government may have set in motion a processof restructuring of the pharma industry. Until now smaller pharma companies withlower pricing points survived due to their pricing differential as compared to thebigger companies. However, with the difference between price points narrowing,

such companies would likely see gradual business erosion over time. Hence, anextremely fragmented industry would consolidate more structurally over time. DRL,despite its steady erosion of market share in recent years, still remains extremelywell regarded amongst the medical fraternity.

Overall, over FY13-15E, we estimate revenue CAGR of 13% in the domestic

formulation segment given the increased focus on newer therapeutic segments.Based on these growth rates, we expect the declining share of the domesticbusiness to DRLs overall growth rates to stabilise at the current levels.

Exhibit 19:Contribution of key brands has beendeclining

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

FY07 FY08 FY09 FY10 FY11 FY12

20%

22%

24%

26%

28%

30%

32%

34%

36%

38%

40%

Others - LHS

Key brands - LHS

Key Brands to overall revenues

Rs mn


Exhibit 20:Domestic business growth to remain close to13% over FY13-15E

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

FY09

FY10

FY11

FY12

FY13E

FY14E

FY15E

0%

5%

10%

15%

20%

25%

Formulations - India - LHS

growthContribution to generics business

Rs mn



14/31

Dr Reddys Labs


Less-than-stellar performance from other EMs

As highlighted earlier, apart from India and Russia, DRL has a strong presence inother emerging markets such as Brazil, Venezuela, South Africa and Vietnam.Whilst the contribution from these markets to overall revenues remains low at4.9% in 1HFY13 (vs 4% in FY12), revenues from these markets have recorded aCAGR of 25.8% over FY08-12. In FY12, these markets expanded by 16% to `3.9bnmainly driven by strong growth in South Africa, Australia and other south Asianmarkets. However, muted growth in Venezuela (impacted by currency devaluation)restricted a further increase in revenues. We believe that despite having a smallbase, growth can be delivered from this segment through more product launches,and hence we build in revenue CAGR of 22% over FY13-15E

Exhibit 21:RoW revenues to increase at 22% over FY13-15E

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

FY09

FY10

FY11

FY12

FY13E

FY14E

FY15E

0%

10%

20%

30%

40%

50%

60%

70%

Formulations - RoW - LHS growth

Rs mn



15/31

Dr Reddys Labs


Biosimilars offer further growthopportunitiesIn FY08, DRL expanded its biogeneric portfolio in India with the launch of Reditux(generic: Rituximab). Subsequently, the company launched two more biosimilar

products in India. Now, DRLs biogenerics portfolio consists of the following drugs: Rituximab (Brand: Rituxan) used for treating rheumatoid arthritis and cancer;

Cresp (Brand: Aranesp) used for the treatment of anaemia;

Grafeel (Brand: Neupogen) used for treating leukapheresis; and

PegGrafeel (Neulasta) used in cancer therapy.

In addition, DRL continues to invest in widening the portfolio, and the companyhas planned more launches in India over the next 2-3 years. Reditux remains thekey product in the biogeneric portfolio with annual sales of nearly US$10mn andthe product is among the top-5 products in the Indian market.

DRL has also entered into an agreement with Merck Serono whereby both thecompanies would jointly develop biosimilars in the oncology space. DRL wouldundertake drug development until phase 1. After validation, Merck would takeover the trials from Phase 2, with Merck retaining the manufacturing once theproduct is commercialised. The agreement also defines the marketing geographiesfor both the companies, with DRL being responsible for India & Russia whilst Merckwould retain Europe and a few other EMs. In the US, the products would becommercialised jointly. Whilst the venture is an important landmark for DRLs entryin the biosimilar space, at least for the next 3 years, this is unlikely to result inmaterial upsides to earnings. After the companies lead the drug through thenecessary trials in the next 18-24 months, we are likely to see more clarity onpotential launch timelines. In the medium term, Reditux could be launched in theRussian market, which would also help validate the potential for the product.


16/31

Dr Reddys Labs


US Time for a breatherThe North American business accounted for nearly 35% of overall revenues inFY12. Over FY09-12, this business has enjoyed much stronger growth rates at17% than DRLs overall revenue growth at 12%. Moreover, the core business(excluding one-offs and exclusivities) expanded at a much faster rate of 28%. Infact, in FY12, the business recorded amongst the highest growth rates amongstIndian companies.

Exhibit 22:DRLs core business has in the past shownsuperlative performance

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

FY08 FY09 FY10 FY11 FY12

0%

20%

40%

60%

80%

100%

120%

Core FTF Core business growth - RHS

Rs mn


Exhibit 23:FY12 core US sales growth for DRL has beenthe second highest amongst Indian generic players

7%

19%

30%

21%

14%

38%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Lupin Sun DRL Cadila Ranbaxy GlenmarkSource: Company, Ambit Capital research

Patent expiry drying up

In the US, DRL launched 15 products in FY12 and 19 products in FY13, catering toa market of ~US$19bn and ~US$36bn, respectively. One of the key reasons forthe high number of new launches in the recent past has been the increasing brandvalue of drugs that are going off-patent (worth ~US$70bn from 2010 to 2012).

Whilst a few interesting product launches would continue in the medium term(2HFY13), which would help maintain the growth momentum, we believe thisopportunity is likely to shrink beyond FY13.

After a strong US pipeline in FY13 (two 180-days exclusivities, two settlements andfour limited competition products), the pipeline for FY14 is relatively weak withonly one visible 180-days FTF launch and one limited competition product launch.Also, in FY14, the pipeline of patent expiry is substantially lower than the earlieryears, which should result in a slowdown in growth momentum for FY14. Boththese factors will result in a muted growth for FY14 for the US generics business.We believe incremental revenues would only come from increasing market shareof existing products and traction on launches of complex generics.

Exhibit 24:Product launches for DRL to taper off in FY14Description FY11 FY12 FY13E FY14E FY15E

Number oflaunches duringthe year

10 15 19 12 10

Market size (US$mn)

6,410 19,086 36,322 14,000 9,901

Avg market size(US$ mn)

641.0 1,272.4 1,911.7 1,166.7 990.1

Source: Industry, Company, Ambit Capital research

Exhibit 25:2013 patent expiries significantly lower

15.0 15.5 15.8 14.9

19.4

35.6

14.5 15.5 13.5

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

2007

2008

2009

2010

2011

2012

2013E

2014E

2015E

Total brand value of drugs losing patents

US$ mn

Source: Industry


17/31

Dr Reddys Labs


However, interesting launch opportunities from FY15 onwards

Whilst the product pipeline until FY14 appears weak, DRLs DMF filings over thepast couple of years indicate opportunities through FY15 and beyond. Apart fromthe known launches of at least ten products through FY15 (brand value ofUS$9.9bn), Exhibit 26 also indicates the potential products that could becommercialised beyond FY14 and FY15.

Exhibit 26:Likely opportunities for DRLGeneric Name

BrandName

FormSize

(US$ mn)Patent expiry Major DMF filers

Linezolid ZyvoxTablet,injectable

680 Nov-14/Jan-21Alembic, Teva,Glenmark, Apotex

Bromfenac Bromday Solutions 100 off patent None

Bendamustine HCL Treanda Powder 200Off patent butexclusivity till Mar-15

Hetero drugs

Lubiprostone Amitiza Capsule 240from Jul-14 toOct-27

Teva

Asenapine Saphris Tablet NA June-15/Apr-26 None

Paliperidone Invega Tablet; ER 150Off patent butexclusivity till Oct-

14

Cipla, Lupin, Torrent,Mylan, Apotex,

GlenmarkBivalirudin Angiomax Injectable 500 Dec-14/Jul-28 Sun, Teva

Decitabine Dacogen Injectable 200Off patent butexclusivity tillMay-13

Fresenius Kabi

Azacitidine Vidaza Injectable 350 Off patent Teva

Capecitabine Xeloda Tablet 700 Dec-13Sun, Cadila, Cipla,

Apotex, Hetero drugs

Trospium Chloride SancturaCapsule,Tablet

70 Nov-24/Feb-25Glenmark, Ranbaxy,

Apotex

Source: Orange Book, Industry, Ambit Capital research. Note: NA indicates Not Available

Acquisition of OctoPlus also strengthens the injectable franchise

In October 2012, DRL agreed to buy OctoPlus, which is a company based in theNetherlands. The company has specific expertise in high-end injectables. Itscapabilities lie in making improved injectable pharmaceuticals based onproprietary drug delivery technologies. The company also focuses on medicineingredients that are difficult to formulate. This would complement DRLs existingcapabilities. Whilst the transaction is likely to be completed within six months, webelieve this acquisition gives a further fillip to DRLs efforts to target more nicheopportunities in the US generic space.

Exhibit 27:Summary of products that could be filed in the next three yearsGeneric Name Brand Name Form

Size(US$ mn)

Patent expiry Major DMF filers

Triptorelin Pamoate Trelstar injectable 370 Jul-15 NoneMedroxy-progesterone

AcetateDepo-Provera injectable 120 Off patent None

Etonogestrel Implanon Implant 240 Off patent None

PaliperidonePalmitate

InvegaSustenna

Suspension 14From Dec-12to Nov-18

Dr. Reddy's

Leuprolide Acetate Lepron Depot Injectable 800From Jan-13to Dec-16

Teva, Bachem, Takeda,Mallinckrodt

Octreotide Acetate Sandostatin Injectable 1400From Jul-13 toJul-16

Sun, Teva, Wockhardt

Ganciclovir Vitrasert Implant NA Off patent Ranbaxy, Excella

Source: OctoPlus, Company, Ambit Capital research


18/31

Dr Reddys Labs


Key assumptions and estimatesExhibit 28:Key assumptions and estimatesParticulars FY12 FY13E FY14E FY15E Comments

Segment revenue breakup (` mn unless specified)Global Generics 70,243 79,756 87,188 100,059

Growth (%) 31.7 13.5 9.3 14.8

Muted growth in the US (the largest contributor to globalgenerics) will result in lower FY14 growth. However,interesting opportunities from other product filings willlead to growth in FY15 and beyond.

US 31,889 36,241 38,415 44,562

Growth (%) 67.9 13.6 6.0 16.0

FY14 likely to be a relatively muted year for the USgenerics business, owing to the combination of a highbase effect and lower number of patent expiries in theUS.

Europe 8,259 7,785 8,174 8,664

Growth (%) (2.0) (5.7) 5.0 6.0

Given the increased competitive intensity in thesemarkets and marginal pick up in Betapharm revenues,

we expect subdued overall growth rates, with revenueCAGR of 5% over FY13-15E.

India 12,931 14,615 16,515 18,661

Growth (%) 10.6 13.0 13.0 13.0

Even as the share of the older portfolio of drugscontinues to decline, overall growth rates from thissegment should be closer to market growth rates.

Russia & CIS 13,260 15,693 17,577 20,037

Growth (%) 22.1 18.4 12.0 14.0

Due to the increased focus on the OTC segment and theexpected growth in the Russian pharma market, weexpect 15% revenue CAGR over FY12-15E from thisgeography.

RoW 3,904 5,423 6,507 8,134

Growth (%) 16.0 38.9 20.0 25.0

Increased product launches will lead to growth and weexpect 28% CAGR over FY12-15E from other emergingmarkets.

PSAI 23,813 29,525 32,653 35,915

Growth (%) 21.2 24.0 10.6 10.0

Muted growth in domestic market and Europe will leadto this segment expanding at ~15% over FY12-15E.

Proprietary Products & Others 2,682 3,313 3,711 4,453

Growth (%) 57.3 23.5 12.0 20.0

We expect this segment to record a CAGR of ~18% overFY12-15E.

Financials (` mn unless specified)

Revenues 97,139 113,443 124,046 141,027

Growth (%) 29.0 16.8 9.3 13.7

Revenue growth to remain muted for FY14 given the

lower number of launches and exclusivities. However,growth in the US business from FY15 onwards will leadto overall revenue growth for the company.

Gross margin (%) 58.1 53.3 52.5 52.5

EBITDA margin (%) 24.9 23.0 22.1 22.1

Core EBITDA margin (%) 21.6 21.7 21.5 22.1

Margins are expected to remain flat in FY14 on accountof lower revenue growth. However, FY15 onwards, wemodel in expansion in margins.

Depreciation 5,214 5,721 6,222 6,636

Net Interest expense 166 (568) (865) (1,374)

Strong cash flow generation to limit debt requirementand keep interest levels and interest rates lower in thefuture.

Adjusted PBT 18,763 20,887 22,071 25,884

Adjusted PBT margin (%) 19.3 18.4 17.8 18.4

Declining EBITDA margins and lower non-operatingincome to keep PBT margins stable in FY14, after which

we expect a marginal pick up.

Tax rate (%) 22.8 20.8 20.1 20.0

Adj consolidated PAT 14,613 16,657 17,706 20,769

Adj consolidated PAT margin (%) 15.0 14.7 14.3 14.7

PAT to remain stable because we believe FY14 will bethe transitional year for the company. Growth in marginsis expected beyond FY15.

EPS (`) 85.9 97.9 104.0 122.0

Core EPS (`) 60.8 86.5 97.7 122.0

Core EPS growth over FY12-15E is expected to be muchhigher than overall growth mainly due to productlaunches picking up from FY15 onwards.



19/31

Dr Reddys Labs


Ambit vs consensus

Exhibit 29:We are above consensus due to growth momentum beyond FY15Consensus Ambit Divergence Comments

Revenue (`mn)

FY2013 114,301 113,443 -0.8%

FY2014 126,306 124,046 -1.8%

FY2015 133,910 141,027 5.3%

We are marginally lower than consensus in FY14 as we expect

fewer launches during the year which will keep growth in FY14muted. However, we expect FY15 is likely to have interestingopportunities from other product filings which will result insignificant growth in FY15.

EBITDA (`mn)

FY2013 24,696 26,039 5.4%

FY2014 26,897 27,428 2.0%

FY2015 27,903 31,147 11.6%

We are marginally ahead of consensus on EBITDA in FY14.Significantly higher-than-consensus revenues have resulted inconsiderable divergence in FY15.

PAT (`mn)

FY2013 16,594 16,657 0.4%

FY2014 18,199 17,706 -2.7%

FY2015 19,846 20,769 4.7%

In FY14, higher-than-consensus depreciation results indivergence at the PAT level. For FY15, the positive impact onmargins due pick up in launches will flow down to the

bottomline.

Source: Bloomberg, Ambit Capital research


20/31

Dr Reddys Labs


Key risks

The key risks for DRL stems from: (a) Changes in regulations governing foreignplayers in the CIS region, (b) Delays in progress in the biosimilar pipeline, and (c)growth slowdown in the Indian pharma market.

Changes in regulations in the key CIS markets

The high growth in the Russian market over the years and the rising healthcarecosts have prompted the government to: (a) cap rising drug prices and (b)encourage more participation from local companies. In the past, DRL hasmanaged its growth through greater participation in the OTC market. The OTCmarket would invite greater regulatory attention, when the markets shareincreases. The regulatory changes for encouraging domestic production are, in ourview, manageable through manufacturing tie-ups with local companies. DRLalready has a tie-up with R-Pharm (entered in December, 2010) though the extentof the dependence on the partner is not clear.

Delays in progress in the biosimilar pipelineDRLs expanding pipeline of biosimilars is a critical asset for future businessgrowth. The regulatory pathways for proving necessary bioequivalence inregulated markets are still not clearly spelt out. Biosimilars would requirenecessary clinical trials, which are time consuming. Thus, poor visibility is aninherent risk. Whilst such delays may not impact earnings, they would likely cloudsentiment and impact valuations.

Along similar lines, delays in US FDA approvals for expected product launches inthe coming years may impact earnings and valuations.

Slowdown in GDP growth has the potential to decrease pharma growth

Whilst the Indian formulations market has seen healthy revenue CAGR of 14%over CY04-11, most of the growth appears to be back-ended and has come inlater years (16% CAGR over CY08-11). This period not only coincides with the highGDP growth rates but a renewed government emphasis on rural spending, whichin turn had led to improved spending power on healthcare. With GDP growthslowing (our Economist expects 6.3% GDP growth for FY13) and the ongoing fiscalcrunch capping the Governments ability to increase spending on various ruralprojects, we believe that in the short term, growth rates for domestic formulationscould suffer. The pharma sector is thus likely to see more subdued growth ratesover the next 12-18 months.

Exhibit 30:The Indian pharma market has expanded at ~1.7x GDP growth

4

5

6

7

8

9

10

11

12

CY05 CY06 CY07 CY08 CY09 CY10 CY11

5

7

9

11

13

15

17

19

21

Pharma market US$bn - LHS GDP growth (%) Pharma market growth (%) Source: Industry, Company, Ambit Capital research


21/31

Dr Reddys Labs


Catalysts

US generic launches could surprise on the upside: While the launch profileover FY14 and FY15 in number of new product launches is well articulated, webelieve there exists further opportunities which the street may not be anticipatingat this point of time. We expect FY14 to be a year when further clarity emerges on

the generic drug launch profile in FY15 and beyond. Further stock catalyst wouldalso be the progress on the venture with Merck for making biogenerics for theglobal markets.

Strong growth in India formulations: Indian geography has been DRLsAchilles heel given the sub-industry growth in the past few years. As the share ofthe older generation products in overall India formulations declines, we expectIndian growth to more closely mirror the industry growth rates. With the new drugpricing regime likely to lead to greater consolidation of market shares amongst theestablished pharma names, we expect DRL to also benefit given its strong brandrecall.


22/31

Dr Reddys Labs


Valuation and recommendationWe have valued DRL using a three-stage DCF model. Our FCFE model has threedistinct phases:

FY14-17:We model each year and broadly assume 13% revenue CAGR and coreEBITDA margins to improve by 63bps to 22% by FY17.

FY18-21: We fade the revenue growth gradually so that by FY21 the revenueCAGR for the period is 9%, whilst EBITDA margins decline to 20.9% in FY21.

FY22-24: We expect revenue growth over this period to remain flat at 9% CAGRbut margins to increase to 22.4% in FY24.

Based on the assumptions shown above and assuming: (a) WACC at 12% (cost ofequity at 12.9%, post-tax cost of debt at 4%, long-term debt/capital employed of10%, and three-year adjusted beta at 0.7x), (b) terminal growth at 4%. Our FCFEmodel values DRLs business at ` 2,230/share (implied P/E multiple of 21.4x onFY14E EPS and EV/EBITDA of 14.1x), implying a 18% upside.

Our positive view on the stock is based on:

We see enough in the product pipeline to justify a faster pace of launches andrevenue growth beyond FY14. Any slow down in the key US geography is likelybe transitory.

Clarity on product filings from the proposed acquisition of OctoPlus.

Healthy balance sheet, generating strong FCF, enables the company to keepinvesting in the necessary asset creation in the long term.

Attractive valuations 1-year forward P/E of 19.2x is at a 11% discount to itsthree-year average.

Exhibit 31:FCF profile

9,000

10,000

11,000

12,000

13,000

14,000

15,000

16,000

17,000

18,000

FY14

FY15

FY16

FY17

FY18

FY19

FY20

FY21

FY22

F

Y23E

F

Y24E

Rs mn

8%

10%

12%

14%

16%

18%

20%

PV of FCFF (LHS) WACC RoCE

Source: Company, Ambit Capital research Note: (a) All financials pertainto consolidated entity

Exhibit 32:DCF-based value is `2,230/sharePV of FCF for forecasting period (FY14-FY24) (` bn) 170.9

Terminal value (`bn) 212.4

Enterprise value (`bn) 383.3

Less: net debt at Mar-13 (`bn) 5.3

Implied equity value (`bn) 378.1

Implied equity value (`/share) 2,230

Source: Company, Ambit Capital research Note: (a) All financials pertainto consolidated entity


23/31

Dr Reddys Labs


Cross-cycle valuationOn a cross-cycle comparison, DRL is trading at 19.2x 12-month forward core netearnings, which implies a 11% discount to the historical three-year average. Wehighlight that the stock has underperformed (vis--vis its peers), owing tocontinued concerns over the product launch profile beyond FY13 as well as the

flagging Indian formulations business. We believe the stock should trade at ahigher multiple as overall clarity on the timelines of a host of filings forcommercialisation would emerge over the next three quarters, which should alsohelp support earnings growth beyond FY15.

On EV/EBITDA, DRL is currently trading at 12.3x, which implies a 8% discount tothe historical three-year average.

Exhibit 33:On EV/EBITDA, DRL currently trades at a 8%discount to its historical average

10

11

12

13

14

1516

17

18

Dec-0

9

Mar-

10

Jun-1

0

Sep-1

0

Dec-1

0

Mar-

11

Jun-1

1

Sep-1

1

Dec-1

1

Mar-

12

Jun-1

2

Sep-1

2

Dec-1

2

DRRD 1-yr fwd EV/EBITDA Avg 1-yr fwd EV/EBITDA

Source: Bloomberg, Company, Ambit Capital research. Note: We haveconsidered core EBITDA (excluding one-offs and exclusivities) for the

purpose of calculation of the EV/EBITDA multiple

Exhibit 34:On P/E, DRL currently trades at a 11%discount to its historical average

15

17

19

21

23

2527

29

31

Dec-0

9

Mar-

10

Jun-1

0

Sep-1

0

Dec-1

0

Mar-

11

Jun-1

1

Sep-1

1

Dec-1

1

Mar-

12

Jun-1

2

Sep-1

2

Dec-1

2

DRRD 1-yr fwd P/E Avg 1-yr fwd P/E

Source: Bloomberg, Company, Ambit Capital research Note: We haveconsidered core EPS (excluding one-offs and exclusivities) for the purposeof calculation of the P/E multiple

Relative valuation of Indian pharma companies

As indicated in the Exhibit below, DRL trades at a 10-12% discount to peers on P/Eand 13-14% discount on EV/EBITDA. Whilst we do not see this discount to peers asjustified, we believe focus on a weaker FY14 growth has resulted in this discount.However, we see this valuation gap narrowing as pipeline visibility emerges overthe next few quarters.

Exhibit 35:Pharma - Valuation snapshotCMP Mcap

Adv3m

EV/EBITDA (x) P/E (x) EV/Sales (x)CAGR

(FY12-14E)ROE (%)

Price performance(%)

Companies` US$

mnUS$mn

FY13E FY14E FY13E FY14E FY13E FY14E EBITDA EPS FY13E FY14E 1m 3m 6m 1 yr

Sun Pharma 744 13,920 10.7 17.1 16.3 25.0 23.0 7.2 6.5 19 14 23 21 6 9 17 49

DRL 1,888 5,797 11.0 13.4 12.4 19.6 17.8 2.9 2.6 4 18 26 23 3 11 15 18

Cipla 424 6,164 13.7 15.4 14.3 22.2 20.5 4.0 3.6 14 21 18 17 3 16 29 26

Lupin 599 4,847 8.9 14.7 12.4 22.7 18.9 3.1 2.7 24 28 25 25 (0) 5 10 35

Ranbaxy 512 3,914 6.9 9.1 11.2 13.9 16.8 1.7 1.8 -7 NA 38 25 1 (3) 1 16

GSK Pharma 2,182 3,343 1.3 19.4 17.4 27.3 24.8 6.2 5.6 10 32 33 34 6 12 8 11

Cadila 899 3,331 2.0 15.8 12.9 25.0 19.3 3.2 2.7 19 21 26 27 6 10 17 31

Average 15.0 13.8 22.3 20.2 4.1 3.6Source: Bloomberg, Company, Ambit Capital research. Note: (a) Valuations and financials for all the companies are based on consensus numbers; (b)Ranbaxy and GSK are Dec-ending companies, hence FY13E=CY12E.


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Accounting analysisExhibit 36:Revenue recognition

Pre-tax CFO as a % of EBITDAYoY change in CFO as

a % of EBITDA (bps)Company/MetricFY09 FY10 FY11 FY12 FY10 FY11

DRL 39% 103% 59% 68% (4,420) 953

Cipla 35% 93% 94% 123% 95 2,907

Sun Pharma 125% 70% 120% 79% 4,997 (4,116)

Lupin 78% 86% 88% 60% 180 (2,709)

Ranbaxy * -3% 11% 117% 52% 10,602 (6,504)

Cadila Healthcare 57% 96% 81% 60% (1,416) (2,183)

Average(ex-Dr.Reddy's) 59% 71% 100% 75% 2,892 (2,521)

Divergence -19% 32% -41% -6% (7,312) 3,474

Source: Company, Ambit Capital research. Note (a) * indicates Dec-ending company hence CY08=FY09 andso on; (b) all financials pertain to consolidated entity

DRL has typically had a below-average pre-tax CFO/EBITDA ratio for the yearsunder consideration. In FY09, CFO remained depressed because of a spurt indebtors (increased 114% to ` 15bn), resulting in significantly lower CFO/EBITDAratio. In FY10, whilst EBITDA decreased by 6%, CFO increased by 146% (one ofthe highest in the peer group) mainly because of lower working capital. Debtorsdeclined by 18% to `11.9bn and current liabilities increased by 25% to `18.9bn,resulting in an improvement in CFO. After declining in FY11 (due to significantincrease in debtors and inventory), pre-tax CFO as a percentage of EBITDA hasimproved.

Exhibit 37:Working capital cycleAverage debtor days Average inventory days

Company/Metric

FY09 FY10 FY11 FY12 FY09 FY10 FY11 FY12DRL 56 69 72 81 64 69 71 67

Cipla 113 111 88 79 88 94 99 98

Sun Pharma 98 94 73 69 75 93 82 81

Lupin 78 77 75 77 82 72 68 76

Ranbaxy * 70 76 70 83 89 91 82 86

Cadila Healthcare 51 46 49 57 68 67 62 66

Average (excluding Dr.Reddy's) 82 81 71 73 80 84 78 81

Divergence (26) (12) 1 8 (16) (15) (7) (15)

Source: Company, Ambit Capital research. Note (a) * indicates Dec-ending company hence CY08=FY09 and so on; (b) all financials pertain toconsolidated entity

DRLs average debtor days have been deteriorating, contrary to the trendseen in the peer average. DRL has typically maintained debtor days that arebelow the peer average. A major reason for the spurt in debtor days appears to bethe launch of Sumatriptan (the generic version of Imitrex) in the US in November2008, because the company may have pushed sales to maximise the benefit fromthe exclusive marketing period. This may have resulted in a bunching up ofdebtors in FY09 (debtors increased 114% in FY09 to `15bn). Average debtor daysin FY10 have increased significantly despite 18% decline in debtors mainly onaccount of high base. We highlight that the year-end debtors for FY11 havedeclined to 62 days from 76 days in FY10. We do not see any concerns on thisfront given that DRL has historically enjoyed lower-than-peer average debtor daysand over the past two years the company is realigning itself with industry trend.

The average inventory days for Dr Reddys has remained fairly stable for the yearsunder consideration and have consistently remained lower than the peer average.


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Exhibit 38:Depreciation analysisAverage depreciation rate

YoY change indepreciation rate (bps)Company/Metric


DRL 5.6% 5.6% 5.1% 5.7% (52) 66

Cipla 6.2% 6.0% 7.7% 7.0% 168 (62)

Sun Pharma 6.6% 6.8% 6.0% 5.8% (89) (12)

Lupin 5.3% 6.0% 6.9% 7.2% 92 25

Ranbaxy * 4.2% 4.3% 5.7% 5.6% 144 (11)

Cadila Healthcare 5.3% 5.5% 4.7% 4.6% (82) (10)

Average(ex-Dr.Reddy's) 5.5% 5.7% 6.2% 6.1% 47 (14)

Divergence 0.1% -0.2% -1.1% -0.3% (98) 80


Depreciation rates are broadly in line with peer average over FY09-12. We do nothave any significant concerns about this.

Exhibit 39:Loans and advances analysisLoans and advances as a % of

networthCompany/Metric

FY10 FY11 FY12

% of loans andadvances to

related parties(FY12)

Loans andadvancesto related

parties as a % ofnet worth (FY12)

DRL 14.5% 16.6% 13.1% 0.0% 0.0%

Cipla 20.7% 17.0% 13.1% 0.0% 0.0%

Sun Pharma 10.8% 13.0% 13.0% 0.1% 0.0%

Lupin 18.5% 20.1% 20.5% 0.0% 0.0%

Ranbaxy * 20.9% 22.7% 49.8% 0.0% 0.0%

Cadila Healthcare 19.2% 20.9% 22.5% 2.6% 0.6%

Average(ex-

Dr.Reddy's)18.0% 18.7% 23.8% 0.5% 0.1%

Divergence -3.5% -2.1% -10.7% -0.5% -0.1%


DRLs loans and advances as a percentage of net worth have remained lower thanthe peer average for FY09-12. In FY11, loans and advances as a percentage ofnet worth increased by 215bps mainly because of a 23% increase in loans andadvances. This increase can be attributed to export benefits receivable, whichdoubled in FY11. A sharp decline in this ratio in FY12 widened the divergencefrom the peer average. However, in FY12, whilst loans and advances decreasedmarginally, net worth increased by 25% resulting in lower loans and advances as apercentage of net worth. The decrease again is attributed to export benefits

receivable, which declined 16% in FY12.


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Exhibit 40:Investment income analysisInvestment income as a % of cash and

marketable investments

Change in investmentincome as a % of cash

and marketableinvestments (bps)

Company/Metric


DRL 5.5% 3.7% 2.2% 4.5% (153) 232

Cipla 15.3% 12.7% 5.2% 6.7% (743) 148

Sun Pharma 7.6% 4.5% 4.8% 5.4% 32 67

Lupin 2.1% 0.2% 0.7% 2.2% 47 155

Ranbaxy * 7.9% 8.6% 6.6% 3.3% (202) (323)

Cadila Healthcare 4.4% 4.8% 4.1% 9.3% (71) 528

Average(ex-Dr.Reddy's)

7.5% 6.1% 4.3% 5.4% (188) 115

Divergence -2.0% -2.4% -2.1% -0.9% 35 117

Source: Company, Ambit Capital research. Note (a) * indicates Dec-ending company hence CY08=FY09 andso on; (b) all financials pertain to consolidated entity; (c) Investment income comprises interest income,dividend income, and profit/loss on sale of investments; (d) Investments comprise marketable/currentinvestments.

DRLs investment income as a percentage of cash and marketable investments hasremained volatile over FY09-12 and has always remained lower than the peergroup average. We highlight that the current investments made by the companyhave remained volatile over the years under consideration. In FY10, dividend andprofit on sale of investments dropped by 65%, resulting in a 38% decline ininvestment income. In addition, current investments in that year increased to`3.6bn from `530mn, resulting in a decline in investment income as a percentageof cash and marketable investments. In FY11, current investments declined to`33mn, resulting in a variation in the ratio in FY11 because of the high base inFY10.

Exhibit 41:Contingent liabilities not provided for by DRLContingent liabilities

(` mn)Contingent liabilities

as % of networthDescriptionFY11 FY12 FY11 FY12

Guarantees issued by banks 119 154 0.3% 0.3%

Letters of credit outstanding 432 714 1.1% 1.4%

Contingent consideration payable in respect of subsidiaries 12 - 0.0% 0.0%

Income tax matters 431 432 1.1% 0.9%

Excise matters, under dispute 127 250 0.3% 0.5%

Custom matters, under dispute - 97 0.0% 0.2%

Sales tax matters, under dispute 170 237 0.4% 0.5%

Estimated amount of contracts remaining to be executed oncapital account and not provided for

2,353 3,460 5.8% 6.9%

Commitment under Export Promotion Capital Goods scheme 9,054 3,982 22.5% 8.0%

Total disclosed disputed liabilities 12,698 9,326 31.5% 18.7%

Source: Company, Ambit Capital research. Note: all financials pertain to consolidated entity;

Whilst the net worth has increased by 24% in FY12, disclosed disputed liabilitieshave decreased by 27% in FY12, resulting in the contingent liability as apercentage of net worth decreasing to 18.7% in FY12. The main components inthe contingent liabilities are the: (a) Commitment under Export Promotion CapitalGoods Scheme (4% of the total contingent liabilities for FY12), which havedecreased by 56% in FY12 and (b) estimated amount of contracts left to beexecuted on the capital account and not provided for (37% of the total contingentliabilities for FY12), which has increased by 47% in FY12. We recommend investors

to seek further details regarding the nature of such disputed liabilities from themanagement. Whilst the ratio has been declining, it remains very high.


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Exhibit 42:Explanation for the flags on cover pageField Score Comments

Accounting AMBER

In our forensic analysis of 337 companies, DRL scores in line with the pharma industry average(comprising of 26 companies). DRL scores high on ratios of: (a) Debtor days; (b) CWIP to grossblock; (c) other loans and advances as a percentage of net worth; (d) selling and distributionexpenses as % of sales; and (e) provision for doubtful debts as a percentage of debtorsHowever, DRL has weaker scores on: (a) change in depreciation rates; (b) CFO/EBITDA; (c) grossblock to gross turnover; and (d) audit fee CAGR to revenue CAGR.

Predictability AMBER Overall, the management has made timely announcements in their earnings calls, meetings andinterviews regarding product filings, acquisitions and business outlook.

Earnings momentum GREENFY14 EBITDA and EPS estimates have been upgraded by 1-4% and FY15 EBITDA and EPSestimates have been upgraded by 5-6% over the past three months.

Source: Ambit Capital research


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Balance sheet

Year to March (` mn) FY11 FY12 FY13E FY14E FY15EShare capital 846 848 848 848 848

Reserves and surplus 45,144 56,596 69,476 83,641 99,841

Total Networth 45,990 57,444 70,324 84,489 100,689

Loans 22,788 34,033 34,033 28,939 26,130

Deferred tax liability (net) 87 (833) (833) (833) (833)

Sources of funds 68,865 90,644 103,524 112,595 125,986

Net block 38,891 39,507 44,074 45,102 45,716

Capital work-in-progress 5,997 7,268 6,500 5,750 5,000

Investments 346 11,141 11,243 11,305 11,367

Cash and bank balances 5,729 7,379 16,174 22,335 31,683

Sundry debtors 17,615 25,339 25,486 27,868 31,683

Inventories 16,059 19,352 21,135 23,110 26,273

Other current assets 7,649 7,519 8,857 9,685 11,010

Total Current Assets 47,052 59,589 71,652 82,997 100,650

Current Liabilities 22,066 24,888 27,972 30,587 34,774Provisions 1,355 1,973 1,973 1,973 1,973

Current liabilities and provisions 23,421 26,861 29,945 32,560 36,747

Net current assets 23,631 32,728 41,706 50,438 63,903

Application of funds 68,865 90,644 103,524 112,595 125,986

Source: Company, Ambit Capital research, Note: All financials pertain to IFRS consolidated accounts

Income statement

Year to March (` mn) FY11 FY12 FY13E FY14E FY15ERevenue 75,289 97,139 113,443 124,046 141,027

yoy growth 6% 29% 17% 9% 14%

Total expenses 59,031 72,996 87,404 96,617 109,880

EBITDA 16,258 24,143 26,039 27,428 31,147

yoy growth 11% 48% 8% 5% 14%

Net depreciation 4,148 5,214 5,721 6,222 6,636

EBIT 12,110 18,929 20,319 21,206 24,510

Interest and financial charges 305 1,067 304 618 257

Other income 692 901 872 1,483 1,631

Adj PBT 12,497 18,763 20,887 22,071 25,884

Provision for taxation 1,403 4,204 4,201 4,427 5,177

Consolidated adj PAT 11,097 14,613 16,657 17,706 20,769

yoy growth 16% 32% 14% 6% 17%

Consolidated reported PAT 11,040 14,262 16,100 17,706 20,769

EPS basic (`) 65.6 86.2 98.3 104.5 122.6

EPS diluted (`) 65.3 85.9 97.9 104.0 122.0

DPS (`) 13.1 13.1 19.0 20.9 26.9



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Cash flow statement

Year to March (` mn) FY11 FY12 FY13E FY14E FY15EPAT 11,040 14,262 16,100 17,706 20,769

Depreciation 4,148 5,214 5,721 6,222 6,636

Others 908 5,289 (974) (1,544) (1,693)

Interest paid (net) 200 690 304 618 257

CFO before change in WC 16,296 25,455 21,151 23,002 25,970

Change in working capital (6,738) (8,960) (183) (2,571) (4,117)

Direct taxes paid (1,549) (345) - - -

CFO 8,009 16,150 20,967 20,431 21,853

Net capex (11,258) (8,421) (9,520) (6,500) (6,500)

Net investments 3,642 (10,576) - - -

Interest received 127 332 872 1,483 1,631

CFI (8,658) (18,665) (8,648) (5,017) (4,869)

Proceeds from borrowings 3,599 7,054 - (5,094) (2,809)

Change in share capital 29 6 (0) (0) -

Interest & finance charges paid (366) (1,109) (304) (618) (257)

Dividends paid (3,063) (2,216) (3,220) (3,541) (4,569)

CFF (377) 3,735 (3,524) (9,253) (7,635)

Net increase in cash (1,026) 1,220 8,795 6,161 9,348


Ratio analysis

Year to March (%) FY11 FY12 FY13E FY14E FY15E

Revenue growth 6.5 29.0 16.8 9.3 13.7

EBITDA growth 11.1 48.5 7.9 5.3 13.6

PAT growth 15.6 31.7 14.0 6.3 17.3EPS norm (dil) growth 15.4 31.5 14.0 6.3 17.3

EBITDA margin 21.6 24.9 23.0 22.1 22.1

EBIT margin 16.1 19.5 17.9 17.1 17.4

Net margin 14.7 15.0 14.7 14.3 14.7

RoCE 17.8 19.2 17.3 16.8 17.5

RoIC 20.2 22.7 21.2 20.0 20.4

RoE 25.0 28.3 26.1 22.9 22.4


Valuation parameters

Year to March (` mn) FY11 FY12 FY13E FY14E FY15EP/E (x) 28.9 22.0 19.3 18.1 15.5

P/B(x) 6.9 5.6 4.6 3.8 3.2

Debt/Equity(x) 0.5 0.6 0.5 0.3 0.2

Net debt/Equity(x) 0.4 0.2 0.1 (0.1) (0.2)

EV/Sales(x) 4.5 3.4 2.9 2.7 2.3

EV/EBITDA(x) 20.7 13.8 12.6 11.9 10.5



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Institutional Equities Team

Saurabh Mukherjea, CFA Head of Equities (022) 30433174 [email protected]

Research

Analysts Industry Sectors Desk-Phone E-mail

Aadesh Mehta Banking / NBFCs (022) 30433239 [email protected]

Achint Bhagat Cement (022) 30433178 [email protected]

Ankur Rudra, CFA Technology / Telecom / Media (022) 30433211 [email protected]

Ashvin Shetty Automobile (022) 30433285 [email protected]

Bhargav Buddhadev Power / Capital Goods (022) 30433252 [email protected]

Chhavi Agarwal Construction / Infrastructure (022) 30433203 [email protected]

Dayanand Mittal Oil & Gas (022) 30433202 [email protected]

Gaurav Mehta Strategy / Derivatives Research (022) 30433255 [email protected]

Harshit Vaid Power / Capital Goods (022) 30433259 [email protected]

Jatin Kotian Metals & Mining / Healthcare (022) 30433261 [email protected]

Karan Khanna Strategy / Derivatives Research (022) 30433251 [email protected] ASV Banking (022) 30433205 [email protected]

Nitin Bhasin Construction / Infrastructure / Cement (022) 30433241 [email protected]

Nitin Jain Technology (022) 30433291 [email protected]

Pankaj Agarwal, CFA NBFCs (022) 30433206 [email protected]

Pratik Singhania Real Estate / Retail (022) 30433264 [email protected]

Parita Ashar Metals & Mining / Telecom (022) 30433223 [email protected]

Rakshit Ranjan, CFA Consumer / Real Estate (022) 30433201 [email protected]

Ritika Mankar Mukherjee Economy / Strategy (022) 30433175 [email protected]

Ritu Modi Cement / Infrastructure / Healthcare (022) 30433292 [email protected]

Shariq Merchant Consumer (022) 30433246 [email protected]

Utsav Mehta Telecom / Media (022) 30433209 [email protected]

Sales

Name Regions Desk-Phone E-mail

Deepak Sawhney India / Asia (022) 30433295 [email protected]

Dharmen Shah India / Asia (022) 30433289 [email protected]

Dipti Mehta India / Europe / USA (022) 30433053 [email protected]

Parees Purohit, CFA USA (022) 30433169 [email protected]

Pramod Gubbi, CFA India / Asia (022) 30433228 [email protected]

Sarojini Ramachandran UK / USA +44 (0) 20 7614 8374 [email protected]

Production

Sajid Merchant Production (022) 30433247 [email protected]

Joel Pereira Editor (022) 30433284 [email protected]


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Dr Reddys Labs

Explanation of Investment Rating

Investment Rating Expected return(over 12-month period from date of initial rating)

Buy >5%

Sell

2013-01-08 500124=in (Ambit Capital) Dr Reddy's Labs (BUY, 18% Upside)_ the Strong Gets Stronger -...

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