Dr. Reddy's Q4 results were a tad below expectation due to weak US (flat QoQ, price erosion) and lower-than-expected EBITDA margin (100bps miss). Despite 25 launches in the year, the US business grew by only 4% YoY to USD948mn. While gVascepa could be launched in two months, other key products such as gCopaxone and gNuvaring are delayed until FY23, which is likely to weigh on US growth prospects. In India, the launch of Sputnik V vaccine will lift the outlook in the near term.

Dr. Reddy's has the rights to distribute 250mn doses in India. We ascribe an NPV of INR123/share for this opportunity. On the core business, we forecast business EBITDA margin to improve to 25% by FY23 and earnings growth of 19% CAGR over FY21-23e.

Revenue in line, margin disappoints: Revenue at INR47bn grew by 6% YoY as strong growth in EU (+15% YoY), RoW (+26% YoY) and PSAI (+10% YoY, volume led) offset muted growth in Russia (+4% YoY, weak demand), US (flat QoQ, -5% YoY, price erosion) and India (8% YoY, -12% QoQ, COVID impact, seasonality). EBITDA margin improved moderately to 22.8% (+115bps YoY, +44bps QoQ) as expansion in gross margin (+220bps YoY,+30bps QoQ) offset increase in SG&A cost (+243bps YoY, +66bps QoQ, higher freight, increased filing costs, digitisation).

Sputnik V adds an NPV of INR123/share: Dr. Reddy's has the rights to distribute up to 250mn doses in India (aims to distribute within 12 months). Initial doses (INR948+5% GST) will be imported from Russia and the rest will be sourced from local manufacturers (expected to start supplies by Aug/Sep). With limited details shared by the company, we assume the sale of 250mn doses in one year, distribution margin of 10-15% based on source of supplies, and MRP of INR750 per dose for locally sourced supplies (in line with USD10 pricing outside India) to arrive at NPV of INR123/sh. Dr. Reddy's is working with the government to bring Sputnik Light (single dose vaccine) in India.

Key call highlights: (a) gVascepa - launch within two months; gCopaxone - answering CRL and gNuvaring - response to CRL is expected in Oct 21 - launch of both products unlikely in FY22; gKuvan - approval for 500mg strength likely in 2HFY22; (b) Rituximab - phase III trials are ongoing; (c) Capex guidance: similar to FY21 (INR9.7bn).