Shares of Dr Reddy’s Laboratories jumped nearly 4% and hit a 52-week high of Rs 6,060 on the NSE in Wednesday’s trade following the company’s December quarter earnings. Investors discounted headwinds highlighted by top domestic brokerages including Kotak Institutional Equities, Motilal Oswal and Nuvama. While Kotak and Nuvama reiterated a buy view on Dr Reddy’s share, Motilal retained a Neutral stance.

The drug maker on Tuesday reported an 11% year-on-year (YoY) jump in net profit at Rs 1,379 crore for the quarter ended December 31, 2023, as against Rs 1,247 crore a year ago. The company said the net profit was led by new products and base business market share gain in the US, and also new launches and strong volumes in Europe. The Hyderabad-based firm’s revenue rose 7% at Rs 7,215 crore as against Rs 6,770 crore crore in the year-ago period.

Read more: Dr Reddy’s Q3 Results: Net profit jumps 11% YoY to Rs 1,379 crore

Kotak Equities: Reduce | Target: Rs 5,750

Kotak retained its ‘Reduce’ rating on the counter for a price target of Rs 5,750. The pharma major delivered a largely steady 3QFY24 performance with slower-than-expected traction in branded markets of India, Russia and CIS driving a marginal EBITDA miss, Nuvama said in its post-earnings stock review.

“While the prevailing US generics tailwinds provide near-term stability, absence of any meaningful approvals for Dr Reddy’s in addition to the regulatory overhang over the Bachupally facility remains a concern. We also continue to await an uptick in domestic and generic API sales. At 25X exgRevlimid FY2026E EPS, we believe the stock is fairly priced,” Kotak said.

Motilal Oswal: Neutral | Target: Rs 5,540

Even after raising its earnings estimates for FY24/FY25/FY26 by 7%/5%/4% , Motilal expects a modest 3% earnings CAGR over FY24-26. Further, the product-specific concentration of earnings remains elevated for Dr Reddy’s, this brokerage said, reiterating its ‘Neutral’ stance.The earnings estimates were raised factoring-in the market share expansion in key products, new launches and better operating leverage. We value Dr Reddy’s on an SOTP basis 22X 12M forward P/E for the base business and adding NPV of Rs 90 for g-Revlimid to arrive at our target price of Rs 5,540.

Nuvama: Reduce | Target: 5,020

Nuvama revised the target price of Rs 5,020 from an earlier target of Rs 4,670 while it reiterated a ‘Reduce’ rating on the stock.

While R&D has been validated by niche launches and its pipeline holds promise, our 20% core EPS CAGR over FY23–26E captures this potential. Rolling over to Q3FY26E, yields a revised target price of Rs 5,020,” Nuvama said.

It remains cautious on Dr Reddy’s prospects given high concentration risk of gRevlimid and base business molecules. Moreover the slowdown in US launches and filings and uncertainty around pipeline monetisation remain a challenge. Subpar India is yet
to deliver on its innovative pipeline and higher R&D, SG&A and inorganic opportunities could impact returns, in Nuvama’s view. SG&A is selling, general and administrative expenses.

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