Pharmaceutical giant Dr Reddy's Laboratories shares are likely to remain in focus after several brokerages retained their ratings but highlighted concerns over the delay in semaglutide commercialisation following an API impurity issue disclosed by the company during its earnings call.
Semaglutide is used for managing type 2 diabetes, treating obesity or excess weight, and lowering the risk of major cardiovascular events.
Brokerage Views
BofA maintained its 'Buy' rating with a target price of Rs 1,570, saying resolution of the API supply issue and ramp-up in supplies remain crucial. The brokerage believes the stock is pricing in a four-to-five-month disruption, with an earlier resolution emerging as a key upside trigger. It also said investors should focus on ex-US business revenue growth and gross margin recovery after a tepid Q4FY26.
Morgan Stanley retained its 'Equal-weight' rating with a target price of Rs 1,215, describing the issue as a temporary delay. The brokerage has built in $130 million in Canada revenue for FY27.
Meanwhile, domestic brokerage Kotak Securities maintained its 'Reduce' rating while cutting its target price to Rs 1,160 from Rs 1,175, calling the development "another dose of disappointment". It said semaglutide API impurity issues could partially squander Dr Reddy's early-mover advantage and estimated semaglutide Canada sales at $56 million and $38 million in FY27 and FY28, respectively. The brokerage added that the slowdown in semaglutide scale-up is likely to weigh on earnings.
Jefferies, on the other hand, reiterated its 'Underperform' rating with a target price of Rs 1,040, saying scale-up issues have pushed semaglutide commercialisation to October-November. It also noted that the company now expects to sell 6-7 million pens globally in FY27 compared with the earlier guidance of 10-12 million.
Management Commentary
During the earnings call, Dr Reddy's said one of the impurities was detected during semaglutide API testing while scaling up production. The company clarified that the issue relates to pre-validation batches and has no impact on the existing marketed product or any recall risk. Validation will be completed before commercial supplies begin, although it may need to write down inventory related to the affected batches.
Commercial supplies are now expected from November onwards, with FY27 supply guidance revised to 6-7 million pens from an earlier expectation of around 12 million pens, it said. Despite the delay, the company maintained its broader financial guidance, reiterating its expectation of around a 20 per cent EBITDA margin and stating that there is no change to its overall business outlook.
Dr Reddy's also said inventory in the Canadian market remains unaffected, with the impact limited to the inability to supply during the delay period. The company added that it remains committed to its existing sourcing relationship while building its own manufacturing capacity for semaglutide and other products.
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