What should investors do with Dr Reddy's shares? Here's what brokerages suggest

Dr Reddy's shares price target: Global brokerages have revised their targets on Dr Reddy's Laboratories after the drug maker on Wednesday said it has signed a definitive agreement with Haleon plc, a leading consumer healthcare company, for the purchase of shares of its group company Northstar Switzerland SARL, to acquire a global portfolio of consumer healthcare brands outside of the United States for a total consideration of GBP 500 million.

A press release from the firm said Dr Reddy's will acquire Haleon's global portfolio of consumer healthcare brands in the Nicotine Replacement Therapy ('NRT') category consists of Nicotinell, a global leader in the category with an extensive footprint in over 30 countries spanning Europe, Asia including Japan, and Latin America and local market-leading brand names of the product– Nicabate in Australia, Thrive in Canada, and Habitrol in New Zealand and Canada. Read more 

Dr Reddy's shares price target: Should you buy, sell or hold? 

-Jefferies has maintained an underperform rating on Dr Reddy's with a target of Rs 5,010 per share. According to Jefferies, growth of acquired brands have remained stagnant in recent years and will require upfront investments. As per the brokerage, the impact of synergies from the acquired portfolio should start reflecting only over FY27-28. "The acquisition is for GBP500m implying 2.3x sales, ~9x EV-Ebitda on CY23 numbers," the brokerage said in its note.

-Macquarie has retained an outperform call on the counter with a target of Rs 6,400 per unit. 
 
-Nomura has continued a neutral call with a target of Rs 6,499 per share. Nomura highlighted these key points:

• Nicotinell is a mature brand and is available in more than 30 countries
• Nicotinell is present in markets of Europe, Canada, Japan & Australia
• Nicotinell together contributes 80% of the portfolio’s revenue in CY23
• Nicotinell is the second-largest brand globally under NRT
• Nicotinell recorded a 3.9% CAGR in the ex-US market over CY21-23
• Financial Impact: Acquisition can be EPS-accretive, but ROIC likely in high-single digits
• The strategic rationale of the acquisition is not convincing
• Acquisition of nicotine replacement therapy brands for a consideration of £500 million

- BofA has kept a buy rating with a target of Rs 6,900. The global brokerage highlighted the following key points:

• Building on OTC now with the acquisition of NRT brands
• Under-invested brand with multiple levers in place
• Acquisition is in line with the stated strategy of art investing in sustainable growth drivers augmenting the OTC business
• See the business replacing the grevlimid hole over time
• Deal could be EPS neutral in year 2 assuming gradual growth and 25% margins

Dr Reddy's shares rose nearly three per cent to the day's high of Rs 6,237 on NSE. Read more 

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