Reduce Dr Reddys; target of Rs 1200: Emkay Global Financial

Emkay Global Financial' research report on Dr Reddys

The 2QFY26 margin performance of Dr Reddy’s was marginally weaker than our expectations (in line with street estimates; adjusted for one-offs), with the gross margin (GM) decline being sharper than our expectations (at 55%, GM logged at its lowest since the launch of gRevlimid) and largely a consequence of lower-than-expected gRevlimid sales. While the tight control on opex and R&D spends was the key positive (in addition to a strong domestic print), we note the street’s and our post-gRevlimid earnings estimates hinge on topline defense, with the benefit of cost control largely built in. We now see heightened uncertainty around the launch timelines/competitive landscape for both the key assets in the pipeline – Semaglutide in Canada (likely to be competitive even by the management’s own admission + 3 new filers since Jun-25 alone) as well as Abatacept (where risk mitigation around Bachupally might still fall short of ensuring an early FY28 launch of the IV version, in our view).

Outlook

Our lower-thanstreet earnings estimates are largely unchanged. We roll forward to Sep-27E EPS and raise our TP by ~4% to Rs1,200 (from Rs1,150); retain REDUCE.

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