Global brokerages trimmed their target prices on Dr Reddy's Laboratories after the drugmaker reported a weaker-than-expected June-quarter performance, hurt by lower US sales, a semaglutide-related inventory write-off and the continued decline in its blockbuster Lenalidomide business.
However, most analysts believe the stock's near-term direction will hinge on how quickly semaglutide supplies normalise in the second half of the financial year.
Dr Reddy's Labs Q1 Result Highlights (Cons, YoY)
- Net Profit falls 68.7% at Rs 444 crore versus Rs 1,418 crore (Estimate of Rs 737 crore).
- Revenue down 5.5% at Rs 8,100 crore versus Rs 8,572 crore (Estimate of Rs 8,221 crore).
- Ebitda down 60.4% at Rs 861 crore versus Rs 2,173 crore (Estimate of Rs 1,398 crore).
- Ebitda Margin at 10.6% versus 25.3% (Estimate of 17%).
- Other Income at Rs 355 crore versus Rs 290 crore.
- Global Generics Revenue down 4.8% at Rs 7,208 crore.
ALSO READ: Dr Reddy's Q1 Results: Profit Plummets Two-Third As Margins Shrink, Revenue Falls 6%
Morgan Stanley maintained its 'Equal-weight' rating but trimmed its target price to Rs 1,200 from Rs 1,215. The brokerage said adjusted revenue and EBITDA came in 2% and 13% below estimates, respectively, describing earnings as being "at the trough."
Bank of America reiterated its 'Buy' rating while reducing its target price to Rs 1,480 from Rs 1,500. It attributed the weak quarter to lower US sales and the semaglutide API disruption but said confidence in the resumption of semaglutide remains the biggest catalyst for the stock. The brokerage expects margins to recover in the second half.
Citi remained the most cautious, maintaining its 'Sell' rating and lowering its target price to Rs 1,040 from Rs 1,070. It said the weak quarter reinforced concerns over profitability, cutting its FY27 and FY28 earnings estimates by 24% and 8%, respectively.
Brokerages on Dr. Reddy's Laboratories
Morgan Stanley
- Maintain Equal-weight; Cut target price to Rs 1,200 from Rs 1,215.
- Q1 was weak, with the semaglutide ramp-up in H2 remaining a key monitorable.
- Adjusted revenue and EBITDA were 2% and 13% below estimates, respectively.
- Believes earnings are at a trough.
- Resumption of semaglutide and the ramp-up of abatacept will be key to meeting FY28 estimates.
- Adjusting for the semaglutide disruption and Middle East crisis, margins were around 18%.
BofA
- Maintain Buy; Cut target price to Rs 1,480 from Rs 1,500.
- Q1 was weak due to lower US sales and the impact of semaglutide API.
- Focus remains on the resumption of semaglutide.
- EBITDA missed estimates, though BofA expects improvement in H2.
- Estimates underlying EBITDA margins in the high teens during Q1.
- Believes confidence on the semaglutide recovery will be the key driver for the stock.
Citi
- Maintain Sell; Cut target price to Rs 1,040 from Rs 1,070.
- Weak Q1 reinforces margin concerns.
- Cuts FY27/FY28 EPS estimates by 24% and 8%, respectively.
- Remains confident of abatacept approval by December 2026.
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