Dr Reddy's Laboratories extended Tuesday's gains and was up over 2 percent in morning trade on Wednesday as investors cheered the generic drug maker's better-than-expected results for the second quarter.
The Hyderabad-based company had reported 32 percent rise in July-Sep quarter net profit at Rs 407 crore, while net sales gained 27 percent to Rs 2,881 crore, helped by strong growth and new generic drug launches, especially in North America. Analysts were expecting a profit of Rs 365 crore on sales of Rs 2,704 crore, according to a CNBC-TV18 poll.
"We expect a further pick up in the second half, driven by a few large US launches and better US dollar/Rupee realizations. Dr Reddy's has underperformed the BSE healthcare index by 19 percent year-to-date on sedate earnings; we expect this to reverse over the next 3-6 months," said Prashant Nair and Anshuman Gupta of Citigroup.
The two analysts maintained their "buy" rating on the stock, while raising target price to Rs 2,035 from Rs 1,970.
Three key launches, including Propecia used for male hair loss treatment, and Toprol XL (hypertension drug) rampup in the second half, will drive growth, Nair and Gupta said.
Other analysts too remain bullish on Dr Reddy's.
"With increasing emphasis on complex specialty generics we expect US earnings to be more resilient in long-term. Biosimilars projects are on track with no material update. We remain 'overweight' on Dr Reddy's on back of better growth expectation in Russia and rest of the world and launch of Propecia (generic) in fourth quarter," HSBC analysts Girish Bakhru and Damayanti Kerai said.
The HSBC analysts also raised their target price on Dr Reddy's to Rs 2,010 from Rs 1,930.
Hitesh Mahida of Fortune Equity Brokers too believes the US generics business will continue to be the growth driver for the company this financial year. It has 63 abbreviated new drug applications (ANDA) pending approval with US Food and Drugs Administration.
However, he feels, the company would feel the high base of FY13 in FY14, and combined with the impending slowdown in patent expiries, its growth rate would come down "drastically" next year.
Mahida has a "hold" rating on Dr Reddy's with a target price of Rs 1,700.
Dr Reddy's shares were up 2.2 percent at Rs 1,762.20 on NSE in morning trade.
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