Did the stock price crash make Dr. Reddy’s valuation better?

3 March 2022 • Parikshit Singh

Dr. Reddy’s Laboratories stock price has bled on D-Street due to the Russia-Ukraine geopolitical issues. The company’s investors are selling off their shares as the company has exposure to both the countries currently in war. The company had signed an agreement in September 2020 with Russian Direct Investment Fund (RDIF) – Russia’s sovereign wealth fund for clinical trials and distribution of Sputnik V vaccine in India. The stock price has been down by over 11% in a week, trading at its 52- week low as the investors discount on the factor that the company is the largest manufacturer of Russian Sputnik V vaccine in India.

However, according to a news article RDIF has been away from all the politic issues and thinks its unjust as sanctions are applied on them due to which they cannot market the product. WHO was supposed to be visiting Russia for pre-qualification of the vaccine however that did not happen due to the war.

However, Dr. Reddy’s has cleared that none of the raw material for the manufacturing of the vaccine is being imported and the vaccine is being manufactured in India itself. The crash in prices have made the stock valuation friendly to buy the stock as it trailing PE trades below the sectoral PE.

According to Nomura, Dr. Reddy’s exposure to Russia is 8-9% and Ukraine is 2%, summing up to ~10% of the revenues impacting the topline in medium term. Margins contraction is expected to be affected to low double digit to single digit due to effect on Russian operations as Russia is a strong market. The company has increased hedges against ruble expected to negate the impact over the coming year. Nomura is of the view that its other business is its strength and this price wreck can be an opportunity to accumulate the stock.

According to a Business Standard report, a Dr. Reddy’s spokesperson said the company has had a strong presence in the region for over three decades. “We hope for a peaceful resolution. In case of an escalation, ensuring the well-being of our staff, meeting patient needs, and business continuity would be our main priorities. We are monitoring developments closely and are preparing accordingly,” the official said.

Though Dr. Reddy’s might have an impact on its numbers in the near future, the company will be focusing on other businesses as it launches products in other markets. The company intends to make new launches in the upcoming quarter in other global markets, while it keeps monitoring the Russia situation.

Source: CNBC TV-18, Business Standard, Nomura

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