Motilal Oswal's research report on Dr Reddys Labs
Dr Reddy’s Labs (DRRD) reported sales in line with our estimates in 1QFY26, while EBITDA/PAT came in higher than expected, primarily led by higher outlicensing income and lower R&D expenses. North America sales declined for the first time in 16 quarters in 1QFY26, partly due to volatility in sales of certain products and rising competition in g-Revlimid. Growth momentum remained intact in the domestic formulation (DF) market in 1QFY26, aided by new launches and price hikes. DRRD witnessed healthy off-take in volume and newer introductions, driving growth in Europe market for the quarter. There was a steady pick-up in NRT business post acquisition.
Outlook
We reduce our earnings estimates by 5%/4% for FY26/FY27, factoring in a) higher competitive intensity in g-Revlimid, b) moderate weakness in PSAI segment, c) growth-oriented opex in NRT and Nestle JV. We value DRRD at 18x 12M forward earnings to arrive at a TP of INR1,190.
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