Analyst Corner: ‘Neutral’ on Dr Reddy’s; firm gets rights for 250m doses of Sputnik

We continue to value DRRD at 25x 12M forward earnings to arrive at Target Price of Rs 5,410. We maintain Neutral on a limited upside from current levels.

The government’s Subject Expert Committee (SEC) of the Central Drugs Standard Control Organization (CDSCO) has recently recommended RDIF’s Sputnik V COVID vaccine for Emergency Use Authorization (EUA) in India. Dr Reddy’s (DRRD) has exclusive marketing and distribution rights for the first 250m doses of Sputnik V vaccines in India.

Considering the base case scenario of a pricing cap of $2 per dose for the vaccine, we believe the upside potential for revenues is ~$300m for DRRD for the duration of the contract. Accordingly, we raise our EPS estimate for DRRD by 5%/2% for FY22/FY23, factoring in the opportunity in the vaccine business.

We continue to value DRRD at 25x 12M forward earnings to arrive at Target Price of Rs 5,410. We maintain Neutral on a limited upside from current levels.

Per the news reports, SEC of the CDSCO has recommended the EUA of RDIF’s Sputnik V COVID vaccine in India. Considering the recommendations, the Drugs Controller General of India (DCGI) would take the final call on the vaccine’s approval. Subsequently, the vaccine would be available for marketing in India.

DRRD has exclusive marketing and distribution rights for the first 250m doses of the Sputnik vaccine in India. While the pricing is capped and distribution is also controlled by the government authority for Covid vaccines, the opening up of vaccine distribution to the private market may lead to better pricing and margins for DRRD.

Many manufacturers have already been contracted with producing the vaccine for global as well as Indian use. Assuming a current pricing cap of $2 per dose for the vaccine, we believe the upside potential to sales is ~$300m for DRRD for the duration of the contract.