Dr Reddy's Laboratories Q1 print misses target; brokerages split on outlook

Dr Reddy's Laboratories' posted a revenue of ₹8,545.2 crore, up 11 per cent year-on-year (Y-o-Y) but flat sequentially.

Brokerages on Dr Reddy's Q1 results: Pharmaceutical major Dr Reddy’s Laboratories’ June quarter (Q1FY26) results received a mixed response from brokerages, with some highlighting margin resilience and emerging market strength, while others flagged weak US revenue and concerns around pricing pressure, especially for gRevlimid (Lenalidomide).

 

The company posted revenue of ₹8,545.2 crore, up 11 per cent year-on-year (Y-o-Y) but flat sequentially. However, this came in below street expectations, especially outside the India market. Profit After Tax (PAT) stood at ₹1,417.8 crore, up 2 per cent Y-o-Y but down 11 per cent Q-o-Q, while earnings before interest, tax, depreciation and amortisation (Ebitda) came in at ₹2,278.4 crore, with a margin of 26.7 per cent. Gross margins dipped Y-o-Y to 56.9 per cent, though improved sequentially.

 

Emkay: Retains ‘Reduce’, cautious on sustainability

 

The Emkay analysts termed the topline performance ‘weak’, noting a 6 per cent miss versus estimates, with the revenue softness being broad-based, barring India. The brokerage said Ebitda too missed estimates, even factoring in a ₹1,200 million out-licencing gain. While Dr Reddy’s managed to report stronger gross margins aided by the one-off income and lower R&D spend, the firm flagged concerns over the sustainability of these gains.

 

The brokerage also raised concerns over the scalability of cost optimisation, particularly SG&A expenses, which rose 13 per cent Y-o-Y and 7 per cent Q-o-Q. The firm highlighted that R&D cuts might not be sustainable in Dr Reddy’s US-focused high-value portfolio. 

 

Despite maintaining a cautious stance, Emkay rolled forward to June 2027 estimates and raised the target price to ₹1,150 from ₹1,050, but retained its ‘Reduce’ rating, citing limited headroom for growth if top-line deceleration continues in FY27.

 

Nuvama: Maintains ‘Buy’ on long-term growth bets

 

In contrast, Nuvama remained optimistic, stating that while the results were below consensus across revenue and margins – mainly due to the continued gRevlimid price erosion in the US – other segments such as India, Russia, CIS, RoW (Rest of the World), and CDMO performed well.

 

The brokerage stressed upon management’s confidence in maintaining 25 per cent Ebitda margins, aided by cost optimisation and upcoming product launches such as Semaglutide (Canada approval expected) and Abatacept (filing in Q3FY26). It sees these products, along with GLP-1s and biosimilars, as key long-term growth drivers. Nuvama reiterated a ‘Buy’ rating with an unchanged target price of ₹1,486, stating that investor focus should shift to new-age therapies rather than near-term weakness.

 

CLSA: ‘Underperform’ on muted US outlook

 

CLSA reportedly offered a more cautious tone, maintaining an ‘Underperform’ rating with a target price of ₹1,120. While the brokerage said earnings were broadly in line with its estimates, it expects the US base business to remain flat or grow at low single digits Y-o-Y, with gRevlimid sales set to taper from Q3FY26.

 

However, CLSA noted that some of this erosion would be partly offset by upcoming launches like Semaglutide in India and Canada, suggesting a gradual shift in growth levers away from legacy US products. 

Other brokerages

BofA reportedly maintained ‘Buy’, raising target price to ₹1,600 from ₹1,500. Investec, too, maintained ‘Buy’. with a target price of ₹1,600. 

 

Meanwhile, Jefferies maintained ‘Underperform’ but raised target price to ₹1,100 from ₹1,010.

 

Systematix, on the other hand, maintained ‘Hold’, but raised target price to ₹1,159 from ₹1,126

 

Besides, Morgan Stanley reportedly maintained ‘Equal Weight’ with a target price of  ₹1,298, while Macquarie maintained ‘Neutral’ rating, with a target price of ₹1,190.

 

Given this, the Q1 results have left analysts divided on Dr Reddy’s near-term prospects. While brokerages like Nuvama remain bullish, banking on pipeline launches and cost control to drive future earnings, Emkay and CLSA have struck a more cautious tone, flagging the pressures in the US generics market and limited flexibility in cost structure. The divergent views reflect a mixed sentiment, with the company’s performance now hinging on execution in emerging therapies and timely product rollouts.