Dr. Reddy's Reports Sound First-Quarter Results; Maintaining $60 FVE

Dr. Reddy’s posted sound fiscal first-quarter results and appears to be on track to meet our forecast for the year. Beyond the usual price erosion and competitive pressures in the generics market, revenue was pressured this quarter in part by light sequential demand in Russia following stockpiling in that country in the prior quarter. The firm offset its modest top-line growth with strong product launches and divestment proceeds in the quarter, which are necessary activities for generic manufacturers to maintain market share. Adjusting for litigation proceeds and keeping in mind the temporary nature of the higher supply chain costs, we see this quarter as a solid start to the company’s fiscal year and maintain our $60 fair value estimate and narrow moat rating.