Synopsis:
Dr. Reddy’s Q1 FY26 results drew mixed brokerage reactions. Morgan Stanley saw the performance as in line but flagged margin pressure. Bank of America remained bullish, raising its target to Rs. 1,600 citing strong margin control. Macquarie stayed cautious, citing revenue softness and maintaining its neutral stance with a Rs. 1,190 target.
Shares of a major pharmaceutical company traded higher intraday following the release of its Q1 FY26 results, though gains were tempered by mixed analyst reactions. While brokerages acknowledged the stability in margins and future growth levers like semaglutide, many flagged concerns around price erosion and near-term headwinds in the U.S. generics segment.
The company in focus is Dr. Reddy’s Laboratories Ltd. The stock opened at Rs. 1,269 and touched an intraday high of Rs. 1,287, up 5 percent from its previous close of Rs. 1,264.85.
What’s the News?
Morgan Stanley on Dr. Reddy’s
Morgan Stanley termed Dr. Reddy’s Q1 FY26 performance was “in line” with expectations, as both EBITDA and profit after tax were largely on track. However, the firm raised concerns over a 350 basis point contraction in gross margins to 56.9%, which it attributed to rising pressure on generic pricing and lower operational leverage. While maintaining an “Equal-weight” rating on the stock, Morgan Stanley highlighted the upcoming approval of semaglutide in Canada as a significant growth trigger. The company anticipates receiving the nod between October and November 2025, aiming for a January 2026 launch.
On the geographical front, the brokerage noted an 11 percent decline in North America revenue due to price erosion and timing factors, while Europe grew 14 percent YoY, supported by acquisitions and new launches. India saw 11 percent YoY growth driven by better pricing and fresh product additions.
Bank of America on Dr. Reddy’s
Bank of America maintained a bullish stance, reiterating its “Buy” call and raising its price target to Rs. 1,600 from Rs. 1,500. The brokerage was encouraged by the company’s ability to protect margins, despite a steep fall in gRevlimid sales. Adjusted EBITDA margin stood strong at 25 percent, backed by 13 percent growth in ex-U.S. markets. It also highlighted that upcoming launches in the U.S. and the Sema approval in Canada are key levers that can support future profitability.
Furthermore, management has the flexibility to trim discretionary spending by 500 to 600 basis points if critical launches like Sema or abatacept face delays. While Bank of America anticipates a downward revision in FY26 earnings due to Revlimid erosion, it remains positive on the company’s trajectory, keeping FY27 earnings estimates unchanged.
Macquarie on Dr. Reddy’s
Taking a more cautious view, Macquarie retained its “Neutral” rating and kept its target price at Rs. 1,190. The brokerage characterized the Q1 results as “modest all-round miss”, across key metrics, including revenue, EBITDA, and net profit, which fell short of both its projections and estimates. The 11 percent decline in North American sales was blamed on price erosion for products like gRevlimid and timings of orders for gSuboxone. However, the domestic business performed better, growing 11 percent year-on-year on the back of new product launches and better pricing.
Macquarie noted that Dr. Reddy’s is ready to roll out semaglutide in over 85 markets but will prioritise supply availability, with Canada being a market of focus. The brokerage also acknowledged management’s flexibility to reduce costs including SG&A and R&D by 500 to 600 basis points, if needed.
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Q1 FY26 Result Analysis
Quarter-on-Quarter Performance, For the quarter ended June 2025, revenue from operations rose marginally by 0.5 percent to Rs. 8,572 crore from Rs. 8,528 crore in March 2025. Operating profit grew 8.8 percent to Rs. 2,174 crore from Rs. 1,998 crore. Profit before tax declined 5 percent from Rs. 2,005 crore to Rs. 1,905 crore. Net profit fell 11.1 percent from Rs. 1,587 crore to Rs. 1,410 crore. The company reported an EBITDA margin of 25 percent for the quarter, and earnings per share (EPS) dropped to Rs. 16.99.
Year-on-Year Performance, Compared to Q1 FY25, revenue increased 11.4 percent from Rs. 7,696 crore to Rs. 8,572 crore. Operating profit rose 2.1 percent from Rs. 2,130 crore to Rs. 2,174 crore. Profit before tax improved 1.2 percent from Rs. 1,883 crore to Rs. 1,905 crore. Net profit climbed 1.3 percent from Rs. 1,392 crore to Rs. 1,410 crore, showing a modest annual improvement.
About the Company
Dr. Reddy’s Laboratories Ltd is one of India’s leading pharmaceutical companies, offering a wide portfolio that spans active pharmaceutical ingredients (APIs), generics, biosimilars, and differentiated formulations. It also provides custom pharmaceutical services (CPS) and operates in key global markets, with a strong presence in the U.S., India, Europe, and other emerging economies.
Written by -Manan Gangwar
