Large Cap Stock To Buy - Dr. Reddy’s Laboratories

I recently read thru stock research report from a stock broker on Dr. Reddy’s laboratories and thought to share key reasoning behind this stock recommendation.
Growth Concerns
For some time, there are a few doubts investors have regarding the growth prospects of Dr. Reddy’s beyond FY13 but these doubts look to be unwarranted. There are many growth triggers which still would be there for company beyond FY13. The growth triggers going forward could be limited competition, complex generic products in the US, Russia and in India; biosimilar products. These growth triggers and proprietary products would ensure and trigger growth of the company beyond FY13.

It looks like execution is the key concern over the next few years. Historically, execution record of the company in India ahs not been very good. But the company has delivered well on monetizing limited competition opportunities in the US. It has also been scaling up operations in Russia and the potential of its biosimilar products pipeline is yet to be realized fully in markets.

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All above mentioned growth drivers would create growth opportunities for Dr. Reddy’s Laboratories even beyond FY13 for sure.

Stock Financials
It is expected in the medium term that the earnings momentum for company would remain strong. Earnings estimates for FY13 has been increased by 6% based on higher sales in the US and rupee depreciation against the US dollar.

Core earnings of the company are expected to grow at a strong CAGR of 27.7% over FY11-14.

Estimations based on these numbers suggest the target stock price for Dr. Reddy’s Laboratories can be revised to Rs.1800 levels over one year. Hence, medium term investors may buy stocks of Dr. Reddy’s with one year time frame in mind.