Dr. Reddy's Laboratories Price Target Cut By Citi Over Intensifying Generic Competition — Full Details
Citi notes that market expectations for Dr. Reddy's Semaglutide opportunity may be too optimistic.
Brokerage firm Citi reduced its price target on Dr. Reddy's Laboratories due to mounting competitive pressures in the Canadian market for generic semaglutide. The research firm noted that market expectations for Dr. Reddy's Semaglutide opportunity may be too optimistic. Citi, however maintained 'sell' rating on the stock.
Competition Heats Up In Canada
The primary concern for Citi is the rise in competition in the Canadian semaglutide market. Taro Pharma, a subsidiary of Sun Pharma, has filed for a generic version of the drug, which is now under review by Health Canada. With this filing, there are now five generic manufacturers vying for a piece of the market.
Citi expects that at least 3 to 5 more companies will file in the coming months, hinting that competitive dynamics and pricing may not remain profitable beyond the first 8-12 months of the market formation. This crowded field of competitors is expected to bring down profit margins.
Valuation and Risks
Citi's target price of Rs 990 is based on a blended valuation of 23 times the estimated earnings per share for the financial year 2027. This multiple is a blend of the company's various businesses: the India business is valued at 28 times, a discount to peers due to lower growth. While the US generics business is valued at 18 times, reflecting a lack of visibility.
The brokerage also outlines several potential upside risks that include a surprise launch of high-value molecules in the US, an improvement in the generic pricing environment in the US, and cost rationalisation measures by the company.
