Analysts said Dr Reddy’s Labs has exclusive distribution rights for the first 250 million doses in India. But there has been a lack of clarity on the agreement between Russian Direct Investment Fund (RDIF) and DRL and also on pricing.
The Government of India has been the sole buyer in Covid vaccine procurement, with Covishield and Covaxin doses being bought at Rs 150 a dose.
The Phase III analysis of Sputnik V hinted at an overall efficacy of 91.6 per cent, which was higher than the efficacy for the currently available vaccines in India. Given the higher efficacy, analysts said DRL might want better pricing.
Emkay Global, which ran a sensitivity analysis to quantify the potential upside, suggested a Rs 60-400 per share gain for Dr Reddy’s Labs.
“Our bear case upside of Rs 60 per share assumes pricing of Rs 150 per dose, in line with Covishield and Covaxin, marketing margin of 15 per cent for DRL and opportunity duration of three years. Our bull case upside of Rs 400 share assumes pricing of Rs 750 a dose as suggested by RDIF, marketing margin of 20 per cent for DRL and opportunity duration of three years,” it said.
Motilal Oswal Securities sees the potential revenues of $300 million. This is on a base case scenario of a pricing cap of $2 per dose for the vaccine. That said, the brokerage noted that even as Sputnik V is registered in 55 countries, Russia has vaccinated only 46 lakh people, or just 3.2 per cent, of its own population.
“Companies such as Pfizer and Moderna continue to explore more opportunities for vaccine supply. Furthermore, other vaccines such as Novavax (which has shown 96.4 per cent efficacy) and Bharat Biotech’s nasal vaccine could disrupt the market. Protection from the different strains of Covid, with minimal side effects, plays a critical role in determining which vaccine (s) would dominate the global markets,” Motilal said.
Analysts noted that RDIF has also entered manufacturing agreements with Hetero Biopharma, Gland Pharma, Stelis Biopharma, Virchow Biotech and Panacea Biotec for 850 million doses. The brokerage has not changed its base earnings estimates and awaits more clarity on pricing and distribution margins.
“Near-term pricing pressures in the core US business notwithstanding, strong launch momentum offers good medium-term growth visibility in the US with Dr Reddy’s expected to exceed $1 billion top line in the US in FY22,” it said.
Kotak said the economic dynamics for Dr Reddy’s Labs remains contingent on securing supplies from RDIF, pricing of the vaccine, scaling up of existing vaccines and approval to other vaccines over the medium term.
“Local manufacturing for Sputnik V will ramp-up by December or March quarter of FY22, providing enough supplies to DRL, though we expect competitive intensity to increase with other vaccines including Novavax, Zydus and potentially J&J also receiving approvals by August and September,” it said.
On assumed sale of 250 million doses and pricing at Rs 150 per dose, a 15-20 per cent distribution margin for Dr Reddy’s translates into incremental EPS contribution of Rs 25-33 for FY2022, it said.
Edelweiss said India is facing a shortfall of 40 million doses a month based on vaccination rate of 81 million doses a month.
“Sputnik V is expected to provide a major boost to India’s inoculation rate given capacity of 850 million doses. We have modelled an NPV of Rs 70 per share for DRL assuming peak sales of 190 million doses in the first year and then taper gradually, price at $3.5 a dose and margin of 12 per cent. Incremental export opportunities and expansion of volumes lend further upside to our estimates,” it said.
The brokerage has revised its target price for DRL to Rs 5,815 from Rs 5,600 earlier. Motilal Oswal sees the stock at Rs 5410 while Emkay sees it at Rs 5,770. At Tuesday’s low of Rs 4,765.50, the targets suggest up to 22 per cent potential upside.
