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

Goldman Sachs has started Dr.Reddy's Laboratories Ltd (ADR)

with a Neutral rating and 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%-15% of FY16E sales), than on its pipeline in which launches have been consequently delayed," analyst Shyam Srinivasan wrote in a note. Notably, the analyst said the company's key products 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, gDIPRIVAN should collectively contribute above US$160 million in sales over FY17-FY18. Though 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. ADRs of Dr.Reddy's were down 1.73 percent to $44.81.