The share price of Dr Reddy’s Labs slipped 7% to a fresh 52-week low a day after the company reported its first-quarter results. The company’s earnings came well below the estimates charted out by most, prompting them to cut the price target and further earnings estimates.
Nuvama on Dr Reddy’s Laboratories
Nuvama Institutional Equities cut the price target to Rs 1,365 from Rs 1,465, implying an upside of 15.7% from the current market price. However, the brokerage retained its ‘Buy’ rating on the stock.
Within quick succession, Dr Reddy’s Lab is seeing another earnings downgrade. Near-term earnings visibility depends on Semaglutide supply resumption and Abatacept approval in Q3FY27.
The company reported a weaker-than-expected performance in Q1FY27 with revenue, adjusted EBITDA, and adjusted net profit missing consensus by 2%, 23%, and 14%. The decline was primarily on account of reduced Lenalidomide sales, price erosion in the US and Europe, Semaglutide API-related impact as indicated earlier, and elevated solvent costs due to the Middle East crisis.
The pharma company’s adjusted margin came in at 13.3%. However, the management is aiming for a 20% EBITDA margin ex-semaglutide (Q4 FY26 guidance of 22–25%).
Motilal Oswal on Dr Reddy’s
The brokerage house Motilal Oswal Financial Services maintained a ‘Neutral’ rating on the stock and cut the price target to Rs 1,125, which implies a 5% downside from the closing price on July 22.
Dr Reddy’s made provisions of Rs 240 crore related to inventory and other associated costs, as it found certain batches of Semaglutide to be out of specification due to issues associated with API.
Q1FY27 was the second consecutive quarter of subdued quarterly North America (NA) sales run rate ($236 million). The pharma giant continues to put efforts into its complex product pipeline to revive NA sales going forward.
Dr Reddy’s showcased robust growth momentum in the India segment, backed by new launches, acquired brands, and a scale-up in its innovation franchise.
Dr Reddy’s changed the operating model of the Nicotine Replacement Therapy (NRT) business temporarily, which impacted sales in Q1FY27.
“We reduce our earnings estimates by 2-3%, factoring in increased opex due to the Middle East conflict and moderate growth in the Pharmaceutical Services and Active Ingredients (PSAI) segment,” said Motilal Oswal.
Given work-in-progress for resolving the Semaglutide-related regulatory issue, commercial benefits from b-abatacept are expected in Q4FY27 onward, and with a high FY26 base, the brokerage expects earnings to decline in FY27 and then revive from FY28 onward.
JM Financial on Dr Reddy’s Lab
JM Financial also maintained its ‘Buy’ rating on the stock, but it slashed the price target to Rs 1,489 from Rs 1,561, implying an upside of 26% from the current market price.
Dr Reddy’s reported yet another weak quarter with a decline of 6% in revenue, 61% in EBITDA, and 69% in net profit YoY, while EBITDA margin contracted to 10% (narrowing 1,484 bps YoY).
Growth was primarily impacted by lower lenalidomide revenue, price erosion in both US and EU generics, and NRT revenue decline due to the change in operating model post-integration.
Further, margin pressure arose from semaglutide API-related inventory provision of Rs 240 crore and higher solvent costs arising from the Middle East conflict.
The company’s management highlighted that, adjusted for lower lenalidomide sales, its underlying performance remained resilient, with healthy double-digit growth across all geographies, including the US, aided by favourable currency movements.
In addition to the underlying strength of the base business, we expect the company to add significant growth from ramp-up of its semaglutide targets to the previously guided levels by FY28, the Abatacept opportunity, and complex injectables and biosimilar launches over FY26– 28.
These could drive FY28 EPS of Rs 80. The stock trades at 15x FY28 earnings, which the brokerage views as attractive given the upcoming growth catalysts.
Dr Reddy’s share price performance
The share price of Dr Reddy’s Laboratories fell 5.7% in the last five trading days. The stock has dropped 11.7% in the past one month and has declined 7% in the last six months. Dr Reddy’s Laboratories’ share price has erased 7.8% of investors’ wealth over the previous 12 months.