Dr Reddy's shares tank 7% post Q3 results; should you buy, sell or hold?

Shares of Dr Reddy's Laboratories tumbled as much as 7 per cent during the trading session on Friday after the leading pharmaceuticals player reported a muted set of numbers in the December 2024 quarter. However, brokerage firms remain divided on the stock following the Q3 earnings.

Dr Reddys Laboratories Ltd reported a 2.5 per cent year-on-year (YoY) rise in December 2024 quarter consolidated net profit at Rs 1,413 crore. The Q3FY25 revenue from operations stood at Rs 8,359 crore, up 16 per cent YoY. Ebitda for the pharma major increased 8.9 per cent YoY to Rs 2,298.2 crore with margins falling 180 bps to 27.5 per cent for the quarter.

Following the announcement of results, shares of Dr Reddy's Laboratories Ltd tumbled more than 6.65 per cent to Rs 1,203.60 on Friday, with its total market capitalization slipping below Rs 1 lakh crore mark. The scrip had settled at Rs 1,289.35 in the previous trading session no Monday. The stock is down 15 per cent from its 52-week high at Rs 1,420.20 hit in August 2024.

Brokerages remain divided on the stock. Analysts from Indian research firms including Nuvama Institutional Equities, JM Financial and Nirmal Bang Institutional Equities are mostly positive on the stock, while HDFC Securities and Systematix Institutional Equities have a negative view on the counter. Motitlal Oswal Financial services remain neutral on the counter.

Dr Reddy’s Labs posted Q3FY25 revenue/EBITDA in line with consensus, whereas PAT was a miss. It has continued higher R&D/SG&A spend utilising gRevlimid cash flow, said Nuvama. This would ease in FY27E. Adjusted EBITDA margin during the quarter stood at 25.6 per cent, which is a positive, it added with a 'buy' tag and a revised target price of Rs 1,533 on the stock

Despite lower gRevlimid sales, EBITDA margins remained healthy at 27.5 per cent in Q3. The company re-iterated its confidence in overcoming the gRevlimid slump post FY26 led by Semaglutide opportunity in Canada & RoW as well as Abatacept from January 27, said JM Financial.

"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. Dr Reddy's remains best placed among generic players to benefit from this. Overall, the stock remains attractive," it added with a 'buy' rating with a target price of Rs 1,723 apiece.

Strong growth is expected in the Gx segment in the near term in the US business on the back of new launches and stable base business performance, said Nirmal Bang Institutional Equities. "We also like the management’s decision to focus on Branded Generics and JVs with MNCs. We maintain our BUY rating on Dr Reddy's with a revised target price of Rs 1,540," it said.

North America sales disappointed and was lower 9 per cent QoQ. Its SG&A spend was also higher during the quarter due to NRT business, branding initiatives, and scaleup in consumer health business, said Systematix. "We expect new business avenues like consumer healthcare, biosimilars and CDMO shall take a few years before they start contributing profitably to the consolidated performance," it said.

R&D spend is being utilized on complex generics, peptides, biosimilars, & NCE oncology. However, currently these investments in new businesses are meaningfully diluting the reported earnings of the company, Systematix said. "We revise our estimates on Dr Reddy's and arrive at target price of Rs 1,060, based on 30 times FY27E EPS," it added with a 'sell' rating on the stock.

Dr Reddy's expects gRevlimid sales in the US to be lumpy, facing competition in key products; sees 15-20 filings per approvals yearly in the US; India to see double-digit growth in FY25, led by new launches; scale-up in key therapies; and in-licensing opportunities; and to focus on niche products: NCE/NDA, biosimilars, peptides, and specialty for the global market, said HDFC Securities.

The company expects to sustain steady growth in the NRT category over the next few years. Factoring in Q3 performance, we cut EPS by 1 per cent for FY25/26E and lowered target price to Rs 1,280, it added, keeping 'reduce' rating intact. "For Dr Reddy's beyond gRevlimid, there is not enough immediate pipeline to sustain growth and margin momentum."

Dr Reddy's would file abatacept biosimilar in December 2025 for US markets. It expects steady growth momentum in the Russia market. DRRD indicated Canada, India and Brazil will be initial focus markets for Semaglutide over the next 12-18 months, said Motilal Oswal with a 'neutral' rating on the stick with a target price of Rs 1,330.