Contrarian calls: Investors say ‘bye’ but analysts say ‘buy’ for Dr Reddy's and Cipla

A wave of profit booking has pulled both Dr Reddy's and Cipla-- sharply off their record highs, touched in August

Analysts on the Street continue to back top drugmakers Dr Reddy's Laboratories and Cipla even as investors rushed to cash out profits off the two scrips after their bull run in the past two years. A wave of profit-booking has pulled both stocks sharply off their record highs, touched in August, but analysts' confidence in the companies remains intact.

Data from Moneycontrol's Analyst Call Tracker showed that 'buy' ratings for Cipla and Dr Reddy's each increased by one in November. For Dr Reddy's, 'sell' calls dropped to 14 from 19 in the previous month, while 'hold' recommendations saw a rise of four. Similarly, Cipla saw an uptick in 'buy' calls, accompanied by a slight decline in 'hold' ratings, which dropped to eight from nine in October.

Despite this bullish sentiment, the stock performance for both companies has been underwhelming. Cipla shares have declined over 6 percent in the past month, while Dr Reddy's has fallen nearly 4 percent . The correction in these stocks is largely attributed to profit booking amid broader market weakness.

Cipla's positive surprise

Analysts' optimism about Cipla stems from the much-awaited clearance of the company's Goa plant which not just came as a positive surprise but also paved the way for the launch of its blockbuster  chemotherapy drug Abraxane.

The prolonged uncertainty surrounding the launch of Abraxane, caused by regulatory challenges at Cipla's Goa facility, had cast a shadow over the drugmaker's growth prospects. The delays at the Goa site had previously pushed analysts to view Abraxane as a viable opportunity only by FY27. However, with the facility now receiving approval, Cipla is poised to move forward with the drug's launch, a development that brokerage firm Citi views positively.

Citi noted that the approval enhances Cipla's pipeline visibility, as Abraxane remains a critical product for the Goa facility. The drug's importance is evident in its contribution to Citi's earnings-per-stock estimates, accounting for 6-7 percent for FY26/27, excluding blockbuster cancer drug Revlimid's impact. Retaining its 'buy' rating, Citi set a price target of Rs 1,830 for Cipla, underpinning the renewed optimism surrounding the company's growth trajectory.

Dr Reddy's stable prospects

During its Q2 earnings call, the Dr Reddy's management highlighted that Revlimid is expected to remain a major revenue driver through FY26. Analysts at Nuvama Institutional Equities also identified several key triggers for the company, including the reflection of its recently acquired Nicotine Replacement Therapy (NRT) portfolio's numbers on the balance sheet from Q3 FY25, potential launches of drugs like Abatacept (for arthritis), Denosumab (a bone anti-resorptive drug), and Rituximab (for oncology) by 2026 or early 2027, as well as new products from its joint venture with Nestle.

The company has ramped up R&D spending to strengthen its biosimilars, generics and biologics segments but refrained from sharing updates on imminent drug launches. While this enhanced R&D focus has sparked optimism among analysts, firms like Citi and Nuvama remain cautiously optimistic, awaiting tangible results in filings and financials. This tempered outlook has led four brokerages to upgrade their rating for Dr Reddy's from 'sell' to 'hold' rather than 'buy,' reflecting a mix of positive momentum and lingering scepticism.

Also read |  Brokerages fall out of love with Dr Reddy's, caution spreads over recent acquisition

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