Dr Reddy’s sales reached Rs35.2bn in Q1FY15, in line withour estimate of Rs36.2bn. Adjusted EBITDA margin was at 23%and PAT atRs5.5bn in Q1FY15. Strong traction in key geographies such as US, India and ROW markets helped in 24% YoY.

1.
Dr.Reddy's Laboratories
Strong sales in key markets drive growth, margins
July 31, 2014
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Q1FY15 Result Update
Surajit Pal
surajitpal@plindia.com
+91‐22‐66322259
Rating Accumulate
Price Rs2,823
Target Price Rs3,023
Implied Upside 7.1%
Sensex 26,087
Nifty 7,791
(Prices as on July 30, 2014)
Trading data
Market Cap. (Rs bn) 478.7
Shares o/s (m) 169.6
3M Avg. Daily value (Rs m) 2606.4
Major shareholders
Promoters 25.49%
Foreign 35.29%
Domestic Inst. 5.44%
Public & Other 33.78%
Stock Performance
(%) 1M 6M 12M
Absolute 7.6 7.8 29.7
Relative 3.7 (18.6) (3.5)
How we differ from Consensus
EPS (Rs) PL Cons. % Diff.
2015 136.5 135.5 0.8
2016 153.8 156.0 ‐1.5
Price Performance (RIC: REDY.BO, BB: DRRD IN)
Source: Bloomberg
1,500
1,700
1,900
2,100
2,300
2,500
2,700
2,900
3,100
Jul‐13
Sep‐13
Nov‐13
Jan‐14
Mar‐14
May‐14
Jul‐14
(Rs)
 Q1FY15 result in line: Dr Reddy’s sales reached Rs35.2bn in Q1FY15, in line with
our estimate of Rs36.2bn. Adjusted EBITDA margin was at 23%and PAT at
Rs5.5bn in Q1FY15. Strong traction in key geographies such as US, India and
ROW markets helped in 24% YoY growth in sales and EBITDA expansion of
140bps. Benefits of limited competition drugs helped in US generics growth,
while volume expansion in focus brands drove 15% YoY growth in domestic
formulations. Quality of sales growth in Russia (18% YoY in local currency)
improved in Q1FY15 as OTC contributed 37% of sales with 27% YoY growth.
 Limited competition drugs drive US sales: Dr Reddy’s launch of limited
competition generics in 2014 continued to drive its sales and reached 43% YoY
growth (in local currency) in Q1FY15. Product mix of sole generics in Vidaza and
Dacogen, limited competition in Reclast and Aricept 23mg, higher demand and
price rise in Depakote ER and Rx growth in Toprol XL and Geodon helped robust
growth in US generic in Q1FY15. The company expects its injectable portfolio to
continue to provide strong traction, while new generics, launched in 2014,
would support growth in H2FY15E.
 Valuation‐Mid‐teen US growth in FY15E, maintain ‘Accumulate’, TP Rs3,023:
Management expects mid‐teen growth in US generics, while overall sales
growth is guided to be muted in FY15. We expect 8% growth in US sales due to
growing competition in limited competition drugs in FY15. The company,
however, could provide positive surprise to our earnings estimate with launch of
Nexium and Copaxone in FY15E. With benefits of lower base, Dr Reddy’s may
achieve 12‐15% growth in domestic formulations in FY15. Strategy of focus
geography will drive ROW sales at 37% growth in FY15. With 11% R&D
expensess to build strong portfolio, we maintain ‘Accumulate’ and retain TP at
Rs3,023.
Key financials (Y/e March) 2013 2014 2015E 2016E
Revenues (Rs m) 116,266 133,473 146,919 158,998
Growth (%) 20.2 14.8 10.1 8.2
EBITDA (Rs m) 24,762 32,517 35,261 38,955
PAT (Rs m) 16,776 22,815 23,217 26,153
EPS (Rs) 98.8 134.1 136.5 153.8
Growth (%) 17.5 35.8 1.8 12.6
Net DPS (Rs) 15.0 15.0 15.0 —
Profitability & Valuation 2013 2014 2015E 2016E
EBITDA margin (%) 21.3 24.4 24.0 24.5
RoE (%) 25.7 27.8 23.1 21.5
RoCE (%) 17.3 18.2 16.8 17.5
EV / sales (x) 4.4 3.9 3.4 3.1
EV / EBITDA (x) 20.7 16.0 14.3 12.8
PE (x) 28.6 21.0 20.7 18.4
P / BV (x) 6.6 5.3 4.4 3.6
Net dividend yield (%) 0.5 0.5 0.5 —
Source: Company Data; PL Research

2.
July 31, 2014 2
Dr.Reddy's Laboratories
Exhibit 1: Q1Y15 Result Overview (Rs m)
Y/e March Q1FY15 Q1FY14 YoY gr. (%) Q4FY14 FY15E FY14 YoY gr. (%)
Net Sales 35,175 28,449 23.6 34,809 146,919 132,170 11.2
Raw Material 7,843 7,500 4.6 8,072 38,199 31,432 21.5
% of Net Sales 22.3 26.4 23.2 26.0 23.8
Personnel Cost 6,488 5,930 9.4 6,815 24,976 24,936 0.2
% of Net Sales 18.4 20.8 19.6 17.0 18.9
Others 12,682 9,610 32.0 12,336 48,483 44,587 8.7
% of Net Sales 36.1 33.8 35.4 33.0 33.7
Total Expenditure 27,014 23,040 17.2 27,223 111,659 100,956 10.6
EBITDA 8,162 5,409 50.9 7,586 35,261 31,214 13.0
Margin (%) 23.2 19.0 21.8 24.0 23.6
Depreciation 1,872 1,613 16.1 1,956 7,533 6,598 14.2
EBIT 6,290 3,796 65.7 5,630 27,727 24,616 12.6
Other Income 185 376 (50.8) 471 2,498 1,839 35.8
Interest (481) 70 NA 81 1,046 24 NA
PBT 6,955 4,102 69.6 6,020 29,179 26,432 10.4
Extra‐Ord. Inc./Exps. (54) (36) (48) (165) (174)
Total Taxes 1,505 528 185.1 1,252 6,128 5,094 20.3
ETR (%) 21.6 12.9 20.8 21.0 19.3
Reported PAT 5,504 3,609 52.5 4,816 23,217 21,512 7.9
Source: Company Data, PL Research

3.
July 31, 2014 3
Dr.Reddy's Laboratories
Exhibit 2: Major Sources of Revenues (Rs m)
Y/e March Q1FY15 Q1FY14 YoY gr. (%) Q4FY14 FY15E FY14 YoY gr. (%)
PSAI (CPS & API) 5,537 5,868 (5.6) 6,641 24,551 23,974 2.4
% of Net Sales 15.7 20.6 19.1 16.7 18.1
India 775 791 (2.0) 979 3,993 3,787 5.4
% of Net Sales 2.2 2.8 2.8 2.7 2.9
International 4,762 5,077 (6.2) 5,662 20,557 20,187 1.8
% of Net Sales 13.5 17.8 16.3 14.0 15.3
North America 547 1,093 (50.0) 1,538 3,883 4,354 (10.8)
% of Net Sales 1.6 3.8 4.4 2.6 3.3
Europe 2,681 2,093 28.1 2,370 8,993 8,770 2.5
% of Net Sales 7.6 7.4 6.8 6.1 6.6
ROW 1,534 1,891 (18.9) 1,754 7,681 7,063 8.8
% of Net Sales 4.4 6.6 5.0 5.2 5.3
Branded Formulation 29,002 21,903 32.4 27,318 119,375 105,164 13.5
India 3,999 3,493 14.5 4,101 17,297 15,713 10.1
% of Net Sales 11.4 12.3 11.8 11.8 11.9
International 25,003 18,410 35.8 23,217 102,078 89,451 14.1
% of Net Sales 71.1 64.7 66.7 69.5 67.7
Russia & CIS 4,861 4,489 8.3 4,519 23,416 19,819 18.1
% of Net Sales 13.8 15.8 13.0 15.9 15.0
Europe 1,459 1,573 (7.2) 1,774 7,398 6,970 6.1
% of Net Sales 4.1 5.5 5.1 5.0 5.3
North America Generics 16,468 10,871 51.5 14,964 61,194 55,303 10.7
% of Net Sales 46.8 38.2 43.0 41.7 41.8
Emerging Mkt Generics 2,215 1,477 50.0 1,960 10,070 7,359 36.8
% of Net Sales 6.3 5.2 5.6 6.9 5.6
Innovative Prod. (Proprietary Prod.) 634 679 (6.6) 851 2,994 3,032 (1.3)
% of Net Sales 1.8 2.4 2.4 2.0 2.3
Net Sales 35,173 28,450 23.6 34,810 146,919 132,170 11.2
Source: Company Data, PL Research

4.
July 31, 2014 4
Dr.Reddy's Laboratories
Income Statement (Rs m)
Y/e March 2013 2014 2015E 2016E
Net Revenue 116,266 133,473 146,919 158,998
Raw Material Expenses 35,274 31,432 38,199 41,022
Gross Profit 80,992 102,041 108,720 117,977
Employee Cost 20,413 24,936 24,976 25,440
Other Expenses 35,817 44,587 48,483 53,582
EBITDA 24,762 32,517 35,261 38,955
Depr. & Amortization 3,859 4,804 4,848 5,142
Net Interest 1,018 24 1,046 973
Other Income 4,170 3,633 5,183 5,569
Profit before Tax 24,055 31,322 34,551 38,408
Total Tax 4,900 5,094 6,128 6,699
Profit after Tax 19,155 26,229 28,423 31,709
Ex‐Od items / Min. Int. 1,003 174 (165) (175)
Adj. PAT 16,776 22,815 23,217 26,153
Avg. Shares O/S (m) 169.8 170.1 170.1 170.1
EPS (Rs.) 98.8 134.1 136.5 153.8
Cash Flow Abstract (Rs m)
Y/e March 2013 2014 2015E 2016E
C/F from Operations 13,317 7,168 35,007 19,079
C/F from Investing (13,944) (12,984) (12,333) (12,835)
C/F from Financing (1,792) 10,198 (17,584) (7,011)
Inc. / Dec. in Cash (2,419) 4,382 5,089 (768)
Opening Cash 7,379 5,054 9,436 14,525
Closing Cash 5,054 9,436 14,525 13,758
FCFF 5,768 14,203 15,442 18,722
FCFE 10,140 25,877 (1,611) 15,674
Key Financial Metrics
Y/e March 2013 2014 2015E 2016E
Growth
Revenue (%) 20.2 14.8 10.1 8.2
EBITDA (%) 4.3 31.3 8.4 10.5
PAT (%) 17.6 36.0 1.8 12.6
EPS (%) 17.5 35.8 1.8 12.6
Profitability
EBITDA Margin (%) 21.3 24.4 24.0 24.5
PAT Margin (%) 14.4 17.1 15.8 16.4
RoCE (%) 17.3 18.2 16.8 17.5
RoE (%) 25.7 27.8 23.1 21.5
Balance Sheet
Net Debt : Equity 0.4 0.5 0.2 0.1
Net Wrkng Cap. (days) 189 53 241 265
Valuation
PER (x) 28.6 21.0 20.7 18.4
P / B (x) 6.6 5.3 4.4 3.6
EV / EBITDA (x) 20.7 16.0 14.3 12.8
EV / Sales (x) 4.4 3.9 3.4 3.1
Earnings Quality
Eff. Tax Rate 23.7 18.4 21.0 20.5
Other Inc / PBT 12.0 6.6 8.6 8.3
Eff. Depr. Rate (%) 7.4 8.1 7.5 7.3
FCFE / PAT 60.4 113.4 (6.9) 59.9
Source: Company Data, PL Research.
Balance Sheet Abstract (Rs m)
Y/e March 2013 2014 2015E 2016E
Shareholder's Funds 73,085 90,800 110,143 133,315
Total Debt 37,688 49,362 32,309 29,261
Other Liabilities (1,649) — (3,492) (4,052)
Total Liabilities 109,124 140,162 138,960 158,524
Net Fixed Assets 52,322 65,670 65,190 71,000
Goodwill — — — —
Investments 17,644 25,889 17,782 23,794
Net Current Assets 39,158 48,603 55,987 63,730
Cash & Equivalents 5,136 8,451 8,727 9,698
Other Current Assets 63,615 70,213 81,167 90,449
Current Liabilities 29,593 30,061 33,907 36,416
Other Assets — — — —
Total Assets 109,124 140,162 138,960 158,524
Quarterly Financials (Rs m)
Y/e March Q2FY14 Q3FY14 Q4FY14 Q1FY15
Net Revenue 33,575 35,338 34,809 35,175
EBITDA 8,456 9,762 7,586 8,162
% of revenue 25.2 27.6 21.8 23.2
Depr. & Amortization 1,733 1,793 1,956 1,872
Net Interest (291) (15) 81 (481)
Other Income 637 177 471 185
Profit before Tax 7,651 8,161 6,020 6,955
Total Tax 793 2,521 1,252 1,505
Profit after Tax 6,903 6,185 4,816 5,504
Adj. PAT 6,903 6,185 4,816 5,504
Key Operating Metrics (Rs m)
Y/e March 2013 2014 2015E 2016E
India Formulations 14,560 15,713 17,297 19,373
US Formulations 37,846 56,606 61,194 62,930
Russia 14,050 16,300 19,232 22,116
PSAI 30,702 23,974 24,551 26,177
Source: Company Data, PL Research.

5.
July 31, 2014 5
Dr.Reddy's Laboratories
Prabhudas Lilladher Pvt. Ltd.
3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai‐400 018, India
Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209
Rating Distribution of Research Coverage
29.4%
51.4%
19.3%
0.0%
0%
10%
20%
30%
40%
50%
60%
BUY Accumulate Reduce Sell
% of Total Coverage
PL’s Recommendation Nomenclature
BUY : Over 15% Outperformance to Sensex over 12‐months Accumulate : Outperformance to Sensex over 12‐months
Reduce : Underperformance to Sensex over 12‐months Sell : Over 15% underperformance to Sensex over 12‐months
Trading Buy : Over 10% absolute upside in 1‐month Trading Sell : Over 10% absolute decline in 1‐month
Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly
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