Dr. Reddy's Reports Solid Fiscal Third Quarter; Our Outlook and $60 Fair Value Estimate Unchanged

Overall, Dr. Reddy's reported a relatively uneventful third quarter, with higher revenue across the board largely due to new product launches and market share gain. On a sequential basis, however, generic drug price erosion in multiple geographies weighed on the company's top line. Additionally, sales of the company's COVID-19 drugs (including the Sputnik V vaccine and remdesivir) fell in India during the quarter, due to a significantly lower rate of infection in the country compared with the previous quarter. Despite the continued erosion of generic prices, the company was able to hold the gross margin flat at 53.8% on a year-over-year basis, largely due to favorable product mix and cost reduction measures. Overall, our expectations for the fiscal year remain unchanged, and we reiterate our $60 fair value estimate and narrow moat rating.