Dr Reddy’s Lab share price cracks nearly 5% amid lower-than-expected Q1 earnings – know what brokerages say

Dr Reddy’s share price: On the back of lower-than-expected June quarter earnings, the pharmaceutical major Dr Reddy’s Laboratories share price cracked nearly 5 per cent to hit the day’s low of Rs 4055.75 per share on the BSE intraday during Friday’s trading session.  

The pharma major reported poor performance on the margins front as well as weak US and Europe sales during the June-end quarter of the financial year 2022-23 (Q1FY23), brokerages believe. 

According to YES Securities, Dr Reddys’ reported weak numbers with disappointment in US sales overshadowing one-off income from India/settlement; the margin was far from much touted 25 per cent though gross margin had one-offs (150bps) due to forex and higher commodity costs. 

US sales were a bit underwhelming as price erosion in Suboxone, Vasopressin due to entry of player in the former while Vascepa also came off quarter-on-quarter (QoQ), brokerage said, retaining a Buy stance with a revised target of Rs 5,120 from Rs 5,350 per share, implying of over 20 per cent upside. 

In a quarter marred by one-offs, Dr Reddy’s delivered a weak margin performance, missing our 1QFY23 adjusted EPS estimate by 14 per cent, Kotak Institutional Equities said. 

In its view, excluding Revlimid, FY2023/24E US growth remains a concern. Nevertheless, Dr Reddy’s stays on the right course with efficient execution of its strategy of boosting ex-US growth. Kotak Institutional retained an ADD rating with an unchanged target of Rs 4,520 apiece (6 per cent upside). 

The brokerage lowered FY23E EBITDA by 5 per cent on lower US sales and gross margins and given Dr Reddy’s core margin outlook remains healthy given continued traction in branded markets, we keep our FY2024/25E estimates largely unchanged. 

Domestic business reported single digit growth on expected lines and API and EM business are expected to improve sequentially, JM Financial said. It derives comfort from new launches/pipeline, injectable ramp up and 25 per cent margin guidance that will drive growth over the long term. 

The brokerage value Dr Reddy’s at 25x FY24E earnings deriving a price target of Rs 5685 per share, (34 per cent upside) while maintaining a Buy rating.