Dr Reddy's shares drop 2% as Citi trims target price; sees 26% downside

Dr Reddy's shares have risen 14 percent in the last three months.

Shares of Dr Reddy's Laboratories fell 2 percent to Rs 1,317 in morning trade on Thursday, June 26, after Citi Research maintained its sell call on the stock and lowered its target price, citing concerns over the company's outlook in the coming quarters.

With a price target of Rs 990, the international brokerage implies a downside potential of over 26 percent from the last close of Rs 1,341. The previous target price given by Citi was Rs 1,040 per share.

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A deep dive into the GLP-1 market in Canada suggests that current street expectations may be overly optimistic, says Citi. The brokerage also flagged the importance of timely regulatory approvals, especially given Dr. Reddy’s past track record with complex filings.

The brokerage noted that a decline in Revlimid sales, along with the expiry of related production-linked incentives (PLI), is likely to drag EBITDA by USD 750–780 million—an impact that will be difficult to fully offset. However, supply of the remaining quantity of Revlimid could support earnings over the next two quarters.

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The pharma firm reported a 22 percent year-on-year increase in net profit, to reach Rs 1,594 crore. Its revenue for the quarter rose 8.6 percent YoY to Rs 8,506 crore.

On the other hand, its gross margin fell 250 basis points quarter-on-quarter, marking a third consecutive sequential fall. During the quarter, the pharma major also pointed out rising pricing pressures in the core US portfolio, especially for gSuboxone, the largest contributor, excluding gRevlimid. Therefore, urging a recalibration of near-term estimates.

At about 9:40 am, shares of the company were trading at Rs 1,325, lower by 1.2 percent from the last close on the NSE. Dr Reddy's shares have risen 14 percent in the last three months.

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