Nomura Financial Advisory and Securities has maintained 'Buy' on Dr Reddy's Laboratories with revised target price of Rs 3,556 as against current market price (CMP) of Rs 3,469 in its report.

Commenting on the investment rationale, Nomura said, 'DRRD  is trading at 25.1x FY16F and 19.5x FY17F P/E. The stock trades at a discount to peers. We see DRRD's exposure to highly volatile currencies (Russian rouble and Venezuelan bolivar) and outstanding 483 observations on the Srikalulam API facility as an overhang.

We take comfort from the recent stability in currencies and management commentary on steps taken to resolve regulatory issues at Srikakulum. Site transfer of Nexium is completed and a required amendment to the ANDA has been filed. However, uncertainty remains regarding requirement of bioequivalence studies and timing of approval.The market is not attributing any meaningful value to the company’s R&D investment, which is the highest among peers.

DRRD is holding an R&D Day on 18 May 2015, which may offer some visibility on the commercial prospects of the key R&D assets. Filings and approvals of NDAs (new drug application), biosimilars and complex generics in the US over the next 12-18 month can lead to P/E expansion, narrowing the gap with peers.  Our revised 12-month target price for DRRD of Rs 3,556 is based on 20x FY17E EPS of Rs 178.7 valuation methodology and target multiple is unchanged.  

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