4 reasons why analysts are bearish on Dr Reddy's Labs outlook after Q4

Analysts have turned cautious on Dr Reddy's Laboratories after Q4 results raised concerns over weakening US business, sharp Revlimid decline, pricing pressure and delays in semaglutide launches

Analysts have raised concerns around Dr Reddy’s Laboratories’ growth outlook after the pharmaceutical company posted a weaker-than-expected March quarter (Q4FY26) result.

 

They believe a sharp decline in high-margin Revlimid sales, continued pricing pressure in the US generics market, and delays in key product launches could weigh on earnings over the next few quarters.

 

While brokerages continue to see long-term opportunities from semaglutide and biosimilars, most believe the stock lacks meaningful near-term triggers.  Dr Reddy's Labs shares slipped 3.9 per cent on the BSE in the intraday trade on Wednesday, before trimming losses to trade flat around 1:55 PM. By comparison, the BSE Sensex was up 0.5 per cent at the same time. 

 

 

Dr Reddy’s Laboratories’ Q4 results

The pharmaceutical major reported consolidated revenue of ₹7,969.2 crore for Q4FY26, down 6.3 per cent year-on-year (Y-o-Y), while Ebitda fell 42.6 per cent to ₹1,176.6 crore. Profit after tax (PAT) declined 43.7 per cent Y-o-Y to ₹931.7 crore, largely due to a sharp fall in Revlimid sales in the US market.

 

Brokerages said the company’s core US business remained weak even after adjusting for one-offs. Emkay Global noted that Dr Reddy’s adjusted Q4 Ebitda margin stood at just 14.5 per cent, nearly 400 basis points below Street expectations.

 

“Gross margin performance clearly points to sharp pricing pressures in the core US base business which we have been highlighting in the past,” Emkay said, adding that the weakness is now becoming more visible after the fading contribution from Revlimid.

 

The brokerage retained its ‘Reduce’ rating with a share price target of ₹1,200. It also cut FY27 and FY28 earnings estimates by around 5 per cent.

 

Here are four reasons why analysts are turning cautious on Dr Reddy’s Labs:

 

Sharp erosion in Revlimid sales

A key overhang for the company is the rapid decline in Revlimid revenues after the drug lost patent protection in the US. Analysts believe this could create a significant revenue gap in FY27.

 

ICICI Securities said Indian pharma companies with higher exposure to Revlimid are expected to face increasing competition as exclusivity benefits fade.

 

“While a dip in Dr Reddy’s US sales is certain in FY27, better market share gains in semaglutide and timely launch of abatacept may help offset the shortfall,” the brokerage said.

 

Add to it, Equirus Securities highlighted that Dr Reddy’s underlying US business has remained flat (sub-$1billion annualised) over four years despite multiple launches, reflecting sustained pricing pressure and a lack of high-value complex product introductions.

 

The brokerage retained a ‘Short’ rating with a target price of ₹1,091.

 

Persistent pricing pressure in US generics

Analysts believe Dr Reddy’s core US generics business continues to struggle with intense competition and price erosion.

 

Emkay Global said the company’s ex-Revlimid quarterly US base business needs to sustainably remain at $230-240 million for the semaglutide opportunity to become meaningful.

 

“While the US base business figure, adjusted for one-offs, was in that range in Q4FY26, we believe that Q1FY27 sales alone can help conclude if this is a reasonable quarterly run rate to work with,” it said.

 

It added that while the management’s confident commentary -- double-digit growth in North America in FY27, 6-7 million Semaglutide pen sales in CY26, and gross margin recovery to over 50 per cent in FY27 -- could prevent meaningful consensus earnings downgrades for now, the absence of concrete positives would maintain cautious stance.

 

Those at Motilal Oswal Financial Services, meanwhile, cited reduced profitability post-competition in Revlimid, delay in semaglutide launches, and pricing pressure in the generics portfolio as key reasons for cutting FY27 and FY28 earnings estimates by 25 per cent and 8 per cent, respectively.

 

It retained a ‘Neutral’ rating with a target price of ₹1,195.

 

Delays in semaglutide launches

While semaglutide remains a major long-term growth opportunity, analysts flagged delays and execution risks around the launch.

 

Dr Reddy’s has reduced its semaglutide sales guidance to 10-11 million units for FY27 from 12 million units earlier due to approval delays.

 

Still, Equirus Securities finds this guidance “aggressive,” especially given the fragmented market structure in Canada.

 

Uncertainty around key biosimilar approvals

Analysts also remain watchful of timelines for biosimilar launches, especially abatacept, which is seen as a major future growth driver.

 

Equirus Securities cautioned that approval and launch timelines remain uncertain given product complexity and Dr Reddy’s historically stretched approval timelines.

 

“While we build in $150 million revenues from abatacept in FY28, delays cannot be ruled out,” it said.

 

ICICI Securities also lowered its target price to ₹1,365 from ₹1,435 after cutting FY27-28 earnings estimates by around 5 per cent due to lower margins in the base business. 

“While FY27 could be a year of consolidation, we believe timely launch of generic semaglutide across markets and abatacept biosimilar in the US and Europe could boost FY28 earnings by ~18 per cent,” the brokerage said. 

It expects DRL’s revenue/Ebitda/PAT CAGR to be ~11 per cent/14 per cent/6 per cent over FY26-28.