Dr. Reddy's Q1 Review: Brokerage Split On Margin Recovery — What's The Takeaway?
Revenue grew 11.4% to Rs 8,572 crore, but the bottom line of Rs 1,418 crore missed Bloomberg’s consensus estimate of Rs 1,514 crore.
Dr. Reddy’s Laboratories Ltd. reported a modest 1.8% year-on-year rise in net profit for the first quarter of FY26, falling short of analyst expectations and prompting a mixed response from brokerages. While revenue grew 11.4% to Rs 8,572 crore, the bottom line of Rs 1,418 crore missed Bloomberg’s consensus estimate of Rs 1,514 crore. Ebitda rose 2% to Rs 2,174 crore, but margins narrowed to 25.4% from 27.7% a year earlier.
Brokerages acknowledged the challenges, but remained divided on the stock’s outlook, with some highlighting long-term growth drivers like semaglutide (Sema) and cost optimisation.
Morgan Stanley On Dr. Reddy's
Morgan Stanley described the Q1 results as “in-line,” noting that Ebitda and PAT were broadly aligned with expectations. However, it flagged a 350 basis point decline in gross margins to 56.9%, citing “higher generic price erosion and lower operating leverage.”
The brokerage maintained its “Equal-weight” rating and highlighted the significance of semaglutide’s pending approval in Canada as a key catalyst. “Dr. Reddy’s expects Sema approval between October and November 2025, with launch timed for January 2026,” it said, adding the product could be a multi-year growth driver.
Morgan Stanley also highlighted regional performance. “North America revenue declined 11% YoY due to price erosion and timing issues. Europe saw 14% YoY growth, driven by the NRT acquisition and new launches. India posted 11% YoY growth, fuelled by new products and pricing.”
On cost control, the firm noted, “The company plans to optimise 500–600bps of discretionary costs from non-sales areas such as travel and consultants.”
BofA On Dr. Reddy's
Bank of America reiterated its “Buy” rating and raised its price objective to Rs 1,600 from Rs 1,500, citing margin resilience. “Despite meaningful erosion in gRevlimid, adjusted Ebitda margin at 25% was supported by core ex-US business growth of 13% YoY,” the note stated.
The brokerage sees multiple levers supporting margin stability. “Sema approval in Canada and US launches are key catalysts to increase confidence on its 25% margin guidance.”
It also pointed to cost flexibility. “DRRD indicated scope to reduce discretionary costs by 500–600 basis points in case of delays in high-value launches like Sema and abatacept.”
Bank of America expects FY26 earnings to be revised downward due to Revlimid erosion, but remains confident in FY27 performance. “Our FY27 EPS is unchanged as the core business remains on track.”
Macquarie On Dr. Reddy's
Macquarie took a more cautious view, maintaining its “Neutral” rating with a target price of Rs 1,190. It described the Q1 performance as a “modest all-round miss,” noting that revenue, Ebitda, and PAT, all came in below its estimates and consensus.
“North America revenue declined 11% YoY, primarily due to price erosion for select products such as gRevlimid and timing of orders for gSuboxone,” the note said. It added that India revenue grew 11% YoY, driven by new launches and pricing.
On semaglutide, Macquarie said, “The company remains ready to launch gozempic in 85+ markets but will prioritise supply availability. Canada remains a market of focus.”
The brokerage also flagged cost-saving potential, stating that, “Management highlighted that it can reduce SG&A and R&D costs by 500–600 basis points if push comes to shove.”
