Synopsis: Dr Reddy’s shares fell nearly 9% after weak Q1 results showed lower revenue and a sharp profit decline due to Semaglutide API disruption and US business pressure. Brokerages gave mixed views, citing recovery potential but highlighting near-term earnings and margin challenges.
The shares of a Large-Cap company specialising in the research, manufacturing, and marketing of affordable and complex generics, biosimilars, Active Pharmaceutical Ingredients (APIs), and over-the-counter (OTC) products are in focus as they have fallen by 8 percent in the day’s trade after their Q1 result and brokerage views.
With a market capitalization of Rs. 95,983.23 crores in the day’s trade, the shares of Dr Reddys Laboratories Ltd declined upto 8.7 percent, reaching a low of Rs. 1,080.05 per share compared to its previous closing price of Rs. 1,183.00 per share.
What Happened
Dr Reddy’s Laboratories Ltd is engaged in the research, manufacturing, and marketing of affordable and complex generics, biosimilars, Active Pharmaceutical Ingredients (APIs), and over-the-counter (OTC) products are in focus following its Q1 results as follows.
Its Revenue from Operations decreased by 5.5% YoY, from Rs. 8,572 crore in Q1 FY26 to Rs. 8,100 crore in Q1 FY27, and increased by 7.3% QoQ, from Rs. 7,546 crore in Q4 FY26 to Rs. 8,100 crore in Q1 FY27.
Its net profit decreased by 69.1% YoY, from a profit of Rs. 1,410 crore in Q1 FY26 to Rs. 436 crore in Q1 FY27, and increased by 97.3% QoQ, from a profit of Rs. 221 crore in Q4 FY26 to Rs. 436 crore in Q1 FY27.
Dr Reddy’s Q1FY27 results were impacted mainly by a Rs. 239.7 crore provision related to semaglutide API inventory and other costs, which significantly reduced profitability. The company also faced pressure from the expected decline in high-margin lenalidomide revenues, weaker US business performance, and margin contraction.
Commenting on the results, Co-Chairman & MD, G V Prasad said: “Our Q1FY27 performance reflected the expected transition beyond lenalidomide revenues, along with an unexpected impact related to semaglutide AP!. However, our underlying base business continued to deliver healthy double-digit growth across all key geographies. Our focus remains on improving the health of our base business through disciplined execution and operational excellence, while building our future pipeline of peptides, biosimilars, and innovative assets to deliver long-term growth.”
Morgan Stanley on Dr Reddy
Morgan Stanley maintains an Equal-weight rating on Dr. Reddy’s and cuts the target price to Rs 1,200 from Rs 1,215, following a weaker-than-expected Q1 performance and near-term uncertainties. The brokerage has revised its valuation assumptions while retaining a cautious stance on the stock.
Dr. Reddy’s Q1 results were below expectations, with adjusted revenue coming in 2% lower and EBITDA 13% below estimates. Morgan Stanley believes earnings are currently at a trough, with recovery likely to be driven by improved product momentum and margin normalization.
According to Morgan Stanley, the timely resumption of Semaglutide supplies and the ramp-up of Abatacept remain key monitorable factors for achieving FY28 estimates. The brokerage noted that, adjusting for the Semaglutide disruption and the impact of the Middle East crisis, Q1 margins could have been around 18%, indicating underlying operational strength.
BofA on Dr Reddy
BofA maintains Buy on Dr. Reddy’s and cuts the target price to Rs 1,480 from Rs 1,500 following a weak Q1 performance impacted by lower US business performance and the Semaglutide API disruption. The brokerage remains positive on the stock but has moderated its target due to near-term challenges.
Dr. Reddy’s Q1 EBITDA was below expectations; however, BofA expects improvement in the second half of the year as supply-related issues normalize. The brokerage estimates that underlying margins were in the high-teens range during Q1, adjusting for the impact of Semaglutide disruptions.
BofA highlights that the key trigger for the stock remains the resumption of Semaglutide supplies, with investor confidence around the recovery timeline being critical. A successful ramp-up in Semaglutide is expected to support earnings recovery and improve growth visibility.
Jefferies on Dr Reddy
Jefferies maintains Underperform on Dr. Reddy’s with a target price of Rs 1,040, as the brokerage sees continued near-term challenges following a weaker-than-expected Q1 performance. The results were a miss even after adjusting for provisions, with pressure from lower US performance, higher raw material costs, and increased SG&A expenses impacting margins.
Jefferies expects margin improvement in the second half of FY27, supported by better operating conditions and recovery initiatives. However, the brokerage has cut its FY27-29 earnings estimates by 1-15%, primarily due to delays in the Semaglutide launch in Canada.
The brokerage highlights that slower Semaglutide adoption and delays in biosimilar Abatacept approval remain key downside risks to earnings estimates. A sustained recovery in Semaglutide momentum will be crucial for improving investor sentiment and valuation outlook.
Citi on Dr Reddy
Citi maintains Sell on Dr. Reddy’s and cuts the target price to Rs 1,040 from Rs 1,070, following a weak Q1 performance that further reinforces concerns around margin pressure. The brokerage remains cautious on the company’s near-term earnings outlook.
Citi has lowered its FY27/FY28 EPS estimates by 24%/8%, factoring in weaker profitability trends and continued pressure on margins. The brokerage believes earnings recovery may take longer amid ongoing operational challenges.
However, Citi remains confident about the approval of Abatacept biosimilar by December 2026, which could provide a growth opportunity over the medium term. The key focus remains on margin improvement and execution on new product launches.
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