Hold Dr Reddys Laboratories: target of Rs 1250: ICICI Securities

ICICI Securities's research report on Dr Reddys Laboratories

Dr. Reddy’s Laboratories’ (DRL) Q2FY26 revenue was slightly ahead of our expectations, though EBITDA and profit were in line. Revenue growth of 9.8% YoY was boosted by consolidation (65-70%) of the acquired NRT portfolio (~8% of sales) and acquisition of other branded products. However, lower sales of gRevlimid impacted US growth (down ~16% YoY/7% QoQ). Gross margin fell 492bps YoY led by lower gRevlimid sales. EBITDA margin fell 386bps YoY despite a 14.7% fall in R&D expenses. Going ahead, management’s focus is on revitalising growth in base portfolio, launching Semaglutide in Canada (may be highly competitive) and other markets and biosimilar launches including Rituximab, Denosumab and Abatacept (subject to regulatory clearance of Bachupally plant).

Outlook

We raise FY26E EPS by ~3% to factor in faster growth in non-US markets; lower FY27E EPS by ~2% due to uncertainties in key new launches. Maintain HOLD; raise TP to INR 1,250, based on 22x FY27E EPS.