Sell Dr Reddys; target of Rs 1150: Emkay Global Financial

Emkay Global Financial's research report on Dr Reddys

Adjusted for the milestone payment received from Journey Medical Corp, 3QFY25 EBITDA for Dr Reddy’s was below street/our estimates. The PAT miss was higher on account of lower other income. The sharp 160bps QoQ decline in gross margin validates the concern we had raised post-2Q that gross margin could have begun its descent, and reinforces our view that EBITDA margin will revert to pre-gRevlimid levels (~21%) by FY27E. The gRevlimid-driven miss in US sales (a meaningful miss nevertheless), the management’s acknowledgement of incremental pricing pressures in top products in the US, the receipt of a CRL for iron sucrose, and limited clarity offered on the CY26 Semaglutide opportunity were clear negatives.

Outlook

We broadly maintain our lowerthan-street earnings estimates. We retain SELL and Dec-25E TP of Rs1,150.

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