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Goldman Sachs Sees 8% Upside At Dr. Reddy's

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Goldman Sachs Sees 8% Upside At Dr. Reddy's
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Goldman Sachs has started Dr.Reddy's Laboratories Ltd (ADR) (NYSE: RDY) with a Neutral rating; its price target of Rs.3,334.00 represents an upside of 8 percent.

"[W]e believe upside from current levels will depend more on when the company can resolve cGMP issues at warning letter plants (Srikakulam, Miryalaguda, Duvvuda; 12 percent–15 percent of FY16E sales), than on its pipeline in which launches have been consequently delayed," analyst Shyam Srinivasan wrote in a note.

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Notably, the analyst said the company's key generics, like gXeloda, gCopaxone and gGleevec (accounting for 4 percent of FY16E–FY19E sales), will now launch later than originally expected. According to Srinivasan, gGleevec, gXeloda, gZevavod and gDiprivan should collectively contribute above US$160 million in sales over FY17–FY18.

Although the analyst is "encouraged by the recent in-licensing of Ph II psoriasis molecule XP23829," he said, "There remain more hurdles to cross before commercialization, which should take at least two years from now, in a best-case scenario."

Moreover, the warning letter on the plants remains a key overhang on the stock, and the analyst said he expects a resolution could take until late FY17.

At time of writing, ADRs of Dr.Reddy's were down 1.73 percent to $44.81.

Latest Ratings for RDY

DateFirmActionFromTo
Nov 2017JefferiesMaintainsUnderperform
Sep 2017Morgan StanleyUpgradesEqual-WeightOverweight
Jul 2016HSBCDowngradesHoldReduce

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