On Monday, Investec reaffirmed its Buy rating on Dr. Reddy's Laboratories (DRRD:LN) (NYSE: RDY), with a stock price target set at INR6,785.00. The endorsement follows the pharmaceutical company's acquisition of Haleon's over-the-counter nicotine replacement therapy (NRT) brands, which includes the globally recognized Nicotinell among others.
The transaction, valued at 2.3 times FY23 sales, approximately GBP 217 million, is expected to be immediately accretive to both EBITDA margins and earnings per share.
The analyst noted that this acquisition aligns with Dr. Reddy's strategic Horizon 2 initiatives, aimed at expanding and strengthening their global over-the-counter (OTC) franchise, which currently generates sales of around $300 million. Nicotinell, which ranks among the top two NRT brands worldwide, is anticipated to serve as a cornerstone for the company's OTC offerings.
The newly acquired brands are projected to contribute about 10% to Dr. Reddy's FY24 sales, excluding revenues from the generic version of the drug Revlimid, and more than 15% to its EBITDA. The analyst expressed optimism about the potential for growth and improved EBITDA margins through new market penetration, product introductions, and increased marketing efforts.
In other recent news, Dr. Reddy's Laboratories announced record annual revenues and profits for fiscal year 2024, exceeding $3.3 billion, largely driven by strategic partnerships and a diverse product pipeline.
This robust performance led to a net cash surplus of $775 million, with significant boosts from the U.S. market and improvements across various regions. The company has also announced an acquisition of consumer healthcare brands from Northstar Switzerland, a Haleon group company, for GBP 500 million.
Citi reaffirmed its sell stance on Dr. Reddy's shares following the acquisition announcement, maintaining a price target of INR 5,200.00. According to Citi's analysis, the acquisition could be 1-3% accretive to Dr. Reddy's earnings per share for fiscal years 2026-2027, but might dilute the company's return on capital employed.
In addition, Dr. Reddy's has formed strategic collaborations with Nestle, Sanofi (NASDAQ:SNY), Bayer (OTC:BAYRY), Pharmazz, and Amgen (NASDAQ:AMGN), and plans to launch over 20 products in the U.S. next year.
The joint venture with Nestle Health Science is expected to contribute to revenue after FY2026, and a strong pipeline of complex products and biosimilars is set to enhance earnings in FY2025 and FY2027, respectively. These are the latest developments in the company's ongoing efforts to expand and diversify its product offerings.
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