Dr Reddy’s Laboratories (DRL) share price plunged 6.66 per cent to Rs 1,203.50 per share on the NSE during Friday after analysts remained cautious on the company’s Q3 performance and differed on its growth outlook.
DRL’s Q3 performance was viewed as subdued by some analysts when they adjusted it for one-time grants and incomes that the company received during the quarter.
Adjusted for these items, revenue, earnings before interest, taxes, depreciation and ammortisation (Ebitda) and profit after tax (PAT) missed consensus estimates by 3 per cent, 5 per cent and 10 per cent, analysts at Nuvama Institutional Equities said in a report.
Dr Reddy’s Lab reported a government grant of Rs 80 crore and a one-time payment income of Rs 130 crore from DFD29 drug, offsetting the impact of a 41 per cent year-on year (Y-o-Y) fall in other income due to foreign exchange loss.
The company’s revenue gained from consolidation of the vaccine business in India and nicotine replacement therapy (NRT) business in Europe.
However, US sales were flat due to market share loss in its star performer Revlimid, a cancer drug, and high competition in legacy products such as Suboxone, Vascepa and Ciprodex.
The management expects to maintain the multiple myeloma drug, Revlimid’s run-rate until September 2025 in the US following which it sees a decline.
Uncertainty beyond Revlimid
While some trust DRL’s potential to arrest Revlimid’s fall by new drug launches in the US, others have either remained neutral or cut earnings estimates, doubting that the launches can fill the gap.
Analysts at HDFC Securities stated that beyond Revlimid, there is not enough immediate pipeline to sustain growth and margin momentum for DRL.
The brokerage slashed its earnings per share (EPS) estimates by 1 per cent for FY25 and FY26 and lowered its target to Rs 1,280, with a “reduce” call.
Similarly, Jefferies also maintained its “underperform” call and sliced target to Rs 1,170, pressing on incremental competition in key products and higher selling expenses.
Meanwhile, HSBC maintained a ‘hold’ at a target of Rs 1,250 per share, and CITI retained ‘sell’ rating, reducing the target price to Rs 1,100, according to reports.
Motilal Oswal slashed DRL earnings estimates by 5 per cent and 3 per cent for FY26 and FY27, respectively, estimating a slow pick-up in new launches in the US market.
This led to growth beyond Revlimid and price erosion in the base portfolio.
The brokerage remained 'neutral' on the stock with a target of Rs 1,330.
On the other hand, analysts at Nuvama Institutional Equities and JM Financial have backed Dr Reddy’s plan to make up for Revlimid’s sales beyond FY27.
The pharma company is expected to bring several products in FY26 and F27, including Venofer, Sprycel, Premarin, Denosumab, Orencia, and Semaglutide in Canada.
Additionally, the company continues to guide for 25 per cent Ebitda margins for FY25, said analysts at Nuvama.
Those at JM Financial agreed, stating that the Street is under-appreciating the Semaglutide opportunity in Canada as well as 18 other markets which will open up from calendar year 2026.
DRL is best placed among generic players to benefit from this, coupled with its attractive valuation among largecap peers, they said.
JM Financial maintained its estimates and ‘buy' rating with a target of Rs 1,723.
Nuvama, too, gave a ‘buy’ call with a reduced target of Rs 1,533 per share.
Q3 financial print
DRL reported a 2.5 per cent Y-o-Y increase in consolidated net profit for Q3FY25 at Rs 1,413 crore. It was driven by its recently-acquired NRT portfolio and strong performance in European and emerging markets.
Revenue rose 16 per cent to a record Rs 8,358.6 crore, while sequentially profit and revenue grew by 13 per cent and 4 per cent, respectively.
Ebitda for the quarter stood at Rs 2,298 crore, up 8.9 per cent Y-o-Y, though the Ebitda margin declined to 27.5 per cent from 29.3 per cent.
At close, the company stock fell 4.90 per cent at Rs 1,226.20, against Nifty50's drop of 0.49 per cent at 23,092.20.
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