BackDr Reddy’s gets a Sputnik boost, but there's lack of clarity on quantum of gains
Analysts are of the view that opening up vaccine distribution to the private market may lead to better pricing and margins for Dr Reddy’s
PremiumDr Reddy’s Laboratories Ltd has continued to remain in limelight with the developments regarding its vaccines. With the approval of the covid-19 vaccine, the stock had gained about 5% on Monday. However, the lack of clarity on the quantum of gains for Dr Reddy’s also meant that the stock corrected more than 3% on Tuesday.
The Russian Direct Investment Fund (RDIF) and Dr Reddy’s in 2020 had signed an agreement to collaborate on clinical trial and distribution of Sputnik V vaccine in India. Dr Reddy’s has exclusive marketing and distribution rights for the first 250 million doses of Sputnik V vaccines in India.
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Looking at the rising covid-19 cases, the government’s Committee of the Central Drugs Standard Control Organization (CDSCO) has allowed RDIF’s Sputnik V vaccine for emergency use in India. The expert committee's recommendation has aided business visibility for the drug maker.
The Street, however, is trying to gauge the gains for the company. Analysts say there is a lack of clarity on the Russian Direct Investment Fund-Dr Reddy’s agreement, and pricing. Analysts at Emkay Global Financial Services Limited say that upside for Dr Reddy’s could range from ₹60- ₹400 a share. Their base case scenario (upside of ₹60 per share) assumes pricing of ₹150/dose, in line with Covishield and Covaxin, and marketing margin of 15% with an opportunity duration of three years. Their bull-case upside of ₹400 share assumes pricing of ₹750/dose as suggested by RDIF, marketing margin of 20% with opportunity duration of three years
Analysts at Motilal Oswal Financial Services Ltd (MOFL) have raised their earnings estimate for Dr Reddy’s by 5% and 2% for FY22 and FY23 respectively, factoring in the opportunity in the vaccine business. Considering the base case scenario of a pricing cap of $2 per dose for the vaccine, MOFL analysts believe that the upside potential for revenues is $300 million for Dr Reddy’s for the duration of the contract.
The pricing for the vaccine in India remains capped and distribution also is being monitored and controlled by the government authorities now. However, analysts are of the view that opening up vaccine distribution to the private market may lead to better pricing and margins for Dr Reddy’s. Also, the start of sales of the vaccine in the international markets can aid superior earnings growth.
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