Dr Reddy’s shares slump 7% as Q3 misses estimates

Shares of Dr Reddy’s Laboratories fell nearly 7% in early trade on Friday after the pharma major’s December quarter earnings missed estimates on account of higher amortisation and lower other income. The topline growth was supported by steady performance in both Europe and emerging market, while the U.S. was subdued due to lower Revlimid sales and market share loss in recently launched products. Revlimid, which has been the single biggest growth driver for the company in recent years, will go off-patent in January 2026,

Extending losses for the second session, Dr Reddy’s shares dropped 6.65% to hit a low of ₹1,203.60 on the BSE. Early today, the pharma heavyweight opened 3.2% lower at ₹1,247.95, after ending 0.54% lower at ₹1,289.35 on Thursday.

At the time of reporting, Dr Reddy’s share price was down 4.2% lower at ₹1,234.90, with a market capitalisation of ₹1.03 lakh crore. The pharma stock is down is down 13% from its 52-week high of ₹1,420.20 touched on August 21, 2024, while it is up 10% from its 52-week low of ₹1,120.01 hit on June 4, 2024.The counter has given flat return of 4% in the last one year, while it has lost 10% in six months and 9% in a month.

For the third quarter of the current fiscal, Dr Reddy’s reported its net profit rising 2.5% year-on-year (YoY) to ₹1,413.3 crore, benefitting from consolidation of the vaccine business in India and NRT business in Europe. The bottom line was also aided by milestone payment and government grant, which offset the impact of a 41% YoY fall in other income due to forex loss. The company reported a government grant of ₹80 crore and a one-time milestone payment income of ₹130 crore from DFD29, used for the treatment of adults with papulopustular rosacea.

The revenue increased 16% YoY to ₹8,358.6 crore, with India business growing by 14%. The North America business came in flat QoQ at $395 million due to lower Revlimid (MS loss) and high competition in legacy products such as Suboxone, Vascepa and Ciprodex.

Analysts view post Q3

Nuvama has retained ‘BUY’ call on Dr Reddy’s with a target price of ₹1,533, saying that the company can retain large part of Revlimid earnings if it can deliver Abatacept and Semaglutide. “As Revlimid is nearing the cliff, investor attention is focused on how DRL offsets the Revlimid impact on earnings,” it says in a note.

Dr Reddy’s is expected to launch several products in FY26E/27E to arrest the Revlimid fall, including Venofer (received CRL), Sprycel, Premarin, Denosumab, Orencia, Semaglutide (in Canada), etc.

JM Financial has also maintained ‘BUY’ rating with a price target of ₹1,723, citing that the stock remains attractive, versus large cap peers, trading at 25x/19x FY26/27 core earnings per share (EPS). “We believe the street is under appreciating the near term Semaglutide opportunity in Canada as well as 18 other markets which are opening up from CY26. DRRD remains best placed among generic players to benefit from this.”

On the other hand, Emkay has retained ‘SELL’ with a price target of ₹1,150 amid lower-than-expected earnings estimates and decline in gross margin, but reinforced that EBITDA margin will revert to pre-Revlimid levels (21%) by FY27E. “The Revlimid-driven miss in US sales (a meaningful miss nevertheless), the management’s acknowledgement of incremental pricing pressures in top products in the US, the receipt of a CRL for iron sucrose, and limited clarity offered on the CY26 Semaglutide opportunity were clear negatives,” it says in a note.

(DISCLAIMER: The views and opinions expressed by investment experts on fortuneindia.com are either their own or of their organisations, but not necessarily that of fortuneindia.com and its editorial team. Readers are advised to consult certified experts before taking investment decisions.)