Dr Reddy's Shares Slide 4% As Brokerages Cut Earnings Estimates After Q1 Miss

Shares of Dr Reddy's Laboratories fell as much as 4.4% on Thursday after brokerages cut earnings estimates and target prices following the drugmaker's weaker-than-expected June-quarter earnings and disruption in semaglutide supplies.

At around 11:41 a.m., the stock was trading 2.1% lower at ₹1,157.5 after hitting an intraday low of ₹1,101, its lowest level in more than a year.

The June-quarter results renewed concerns over the company's profitability, with analysts saying the timing of earnings recovery now depends largely on the resumption of semaglutide supplies and regulatory approval for biosimilar abatacept.

Dr Reddy's had earlier this month said supplies of its generic semaglutide would remain unavailable in India and disrupted in Canada until at least late October after an impurity issue in the active pharmaceutical ingredient forced it to halt production of new batches. The company has approvals for the product only in India and Canada.

The disruption also prompted the company to lower its FY27 semaglutide sales target to 6-7 million pens from an earlier estimate of 12 million pens.

Semaglutide Delay Clouds Recovery

Brokerages said the interruption in semaglutide supplies has become the biggest near-term overhang for the stock.

JPMorgan said weak core profitability persisted despite healthy growth in the branded business and reduced its FY27 and FY28 earnings estimates by 12-17%. The brokerage warned that any delay in restarting semaglutide supplies or obtaining approval for biosimilar abatacept could further weaken earnings, as the two products together are expected to contribute around 20% of FY28-FY29 earnings.

Management reiterated during the post-results analyst call that semaglutide supplies are expected to resume in November, while approval for abatacept is anticipated in early 2027. Excluding semaglutide, the company expects September-quarter EBITDA margin to be around 20%, lower than its earlier expectation of 22-25%.

Weak Margins Trigger Earnings Cuts

Brokerages said the June-quarter earnings highlighted persistent pressure on margins.

Revenue from operations declined 5.5% year-on-year to ₹8,100 crore, missing analysts' estimates of ₹8,160 crore, as North America sales fell 35.3% amid pricing pressure and intensifying competition.

Consolidated net profit dropped 68.7% to ₹444 crore, well below analysts' expectations of ₹722 crore, while the company also booked a one-time provision of ₹239 crore related to inventory and other costs arising from the semaglutide disruption.

JPMorgan said adjusted EBITDA margin came in at 14.3%, around 330 basis points below its estimates due to higher selling, general and administrative expenses and freight costs, indicating continued weakness in the core business.

Citi echoed similar concerns, saying adjusted EBITDA margin fell to 13.3%, while gross margin declined to 49.5%, both multi-year lows. It added that US sales fell below pre-gRevlimid levels despite the Bosutinib first-to-file launch, suggesting further erosion in the base business, while strong growth in international markets appeared increasingly investment-led and margin dilutive.

Brokerages Remain Cautious On Outlook

Brokerages largely remained cautious on Dr Reddy's following the June-quarter performance.

JPMorgan maintained its 'Underweight' rating and reduced its target price to ₹1,100 from ₹1,200, while Citi reiterated its 'Sell' rating and cut its target price to ₹1,040.

Analysts said the next phase of earnings recovery will depend on the successful resumption of semaglutide supplies in November and timely regulatory approval for biosimilar abatacept. While management remains optimistic about both milestones, brokerages cautioned that any further delays could result in additional earnings downgrades and keep pressure on the stock in the coming quarters.