Dr. Reddy’s Shares Spike After Morgan Stanley, BofA Raises Price Target Post Q1 Results
The company posted a consolidated net profit of Rs 1,418 crore for the April–June period, up just 1.8% year-on-year and below the Rs 1,514 crore consensus estimate.
Shares of Dr. Reddy’s Laboratories Ltd. traded 2.53% higher on Thursday despite the pharmaceutical major reporting a tepid set of earnings for the first quarter of FY26, missing analyst estimates on key profitability metrics. The stock declined as investors reacted to muted growth and cautious commentary from brokerages.
The company posted a consolidated net profit of Rs 1,418 crore for the April–June period, up 1.8% year-on-year, but below the Rs 1,514 crore consensus estimate. Revenue rose 11.4% to Rs 8,572 crore, falling short of the projected Rs 8,693 crore. Operating profit came in at Rs 2,174 crore, up 2% from the previous year, while margins narrowed to 25.4% from 27.7% in the same quarter last year.
The earnings miss was attributed to pricing pressure in the U.S. generics market, particularly on key products such as Revlimid, along with lower operating leverage. Gross margins also declined year-on-year, reflecting a less favourable product mix and higher input costs.
Brokerages offered a mixed view on the results. Morgan Stanley maintained its “Equal-weight” rating with a target price of Rs 1,298, noting that the margin decline was driven by generic price erosion and subdued operating leverage. The firm highlighted the upcoming approval and launch of Sema as a key catalyst, expected between October and January.
BofA remained more optimistic, reiterating its “Buy” rating and raising its target price to Rs 1,600. It acknowledged the sharper-than-expected erosion in Revlimid, but pointed to multiple levers, including Sema, core business growth, and cost control, that could support margins around 25% going forward.
Macquarie took a more cautious stance, maintaining a “Neutral” rating with a target of Rs 1,190. It described the Q1 performance as a “modest all-round miss,” citing weakness in North America revenue due to price erosion and timing issues with certain product orders.
Dr. Reddy’s continues to face headwinds in its largest market, the U.S., even as it expands its footprint in Europe and emerging markets. The company has also undergone regulatory inspections at multiple sites, with Form 483 observations issued, which could add to near-term uncertainty.
