Dr Reddy's Labs slumps 5% as brokerages give 'Reduce' call post Q4 earnings

Shares of Dr Reddy’s Laboratories fell 5 per cent at Rs 5952.70 per share on NSE in Wednesday’s intraday deals. This came despite the company delivering a strong show in January-March earnings for financial year 2023-24 (Q4FY24). 

On Tuesday, the pharma giant posted a net profit of Rs 1,307 crore for the March quarter of FY24, marking a 36 percent increase from the previous year. In the corresponding quarter of the previous year, the Hyderabad-based pharmaceutical firm recorded a profit of Rs 960 crore.

Revenue stood at Rs 7,083 crore, marking a 12 percent rise from the year-ago quarter's revenue of Rs 6,297 crore, although slightly below the estimated revenue of Rs 7,136 crore according to brokerage polls.

 

Additionally, the company's board declared a final dividend of Rs 40 (800 per cent) per equity share of Rs 5 each for the financial year 2023-24.

However, the performance did not appeal much to analysts who rated the stock of the company as ‘Reduce’, post the Q4 results. 

Analysts at Kotak Institutional believe that the company delivered a subdued Q4FY24, much lower than its estimates. 

The miss was driven by lower Revlimid sales, muted growth across markets and higher R&D spends. While the prevailing US tailwinds provide stability, absence of any meaningful approvals for Dr Reddy’s remains a concern, analysts said. 

“We also highlight that a further pick-up in base domestic growth and profitability will be critical in the post-gRevlimid era for DRRD. At 25X ex-Revlimid FY2026E EPS, we believe the stock is fairly priced. REDUCE with an FV of Rs 5,935,” Alankar Garude, Samitinjoy Basak and Aniket Singh of Kotak Institutional Equities wrote in a report. 

Those at Nuvama, also furthered a negative view over Dr Reddy’s Labs Q4 performance, with analysts estimating that the core business EBITDA margin (excluding Revlimid) corrected 200–300 basis points Y-o-Y to 17 per cent, implying weakness in base profitability. 

The company’s complex product R&D coupled with weakness in the domestic business may keep base profitability tepid while growth initiatives would kick in beyond FY27E, said analysts. The brokerage retained ‘Reduce’ on the stock with a new target price of Rs 5,028 from earlier Rs 5,020.

Motilal Oswal, however remained ‘Neutral’ on the stock but said that the stock valuation adequately factors in the Q4 results and earnings growth may moderate going forward. 

“After delivering 30 per cent YoY earnings growth in FY24, we expect earnings growth to moderate to a 3.5 per cent CAGR over FY 24-26, partly due to a gradual build-up of market share of g-Revlimid. The investment in JV with Nestle and in biosimilar segment should give commercial benefits after FY26,” analysts at MOSL wrote in a report. 

Thus, the brokerage believes that the valuation adequately factors in the upside in earnings and maintains a ‘Neutral’ rating on the stock.

At 10:17 AM, the stock of the company was trading 3.35 per cent lower at Rs 6,047.95 per share on the NSE. In comparison, the NSE’s Nifty 50 fell 0.16 per cent at 22,268 levels. Dr Reddy’s is presently trading at a price to earnings multiple of 18.76 times.