Dr Reddy’s tumbles despite multi-fold jump in Q4 profit; here's what analysts say

Shares of Dr Reddy’s Laboratories tumbled in Thursday’s session (May 11, 2023), a day after the company released its March quarter numbers (Q4FY23). The stock slipped as much as 6.6 per cent to hit the day’s low of Rs 4,545 apiece. The stock opened below the flatline and was trading at Rs 4,567.2 a share at around 11:00 AM on the BSE. The counter was the top laggard on the Nifty50 index today.

The pharma company reported a consolidated net profit of Rs 960.1 crore for the quarter ended on March 31, 2023, implying a jump of 890 per cent or almost nine times year-on-year (YoY) from Rs 97 crore reported in the corresponding quarter of the previous fiscal. Its revenue from operations grew by 15.28 per cent YoY in the March quarter of FY23 to Rs 5,843 crore from Rs 5,068.4 crore in the year-ago quarter.

The Street dumped Dr Reddy’s shares for multiple reasons including brokerages' mixed view on the stock. Zee Business analyst Nupur Jainkunia also noted that the company has reported numbers with, “too many adjustments and there was a big miss on adjusted numbers.” 

Global brokerage Macquarie notes that the Q4 was largely similar to its expectations and, maintained an ‘outperform’ rating on the stock with a target of Rs 5,250 apiece. On the contrary, Goldman Sachs has maintained a ‘neutral’ stance on Dr Reddy’s with a 'reduced' target of Rs 4,750 from Rs 4,840. The brokerage believes the pharma major reported a weak quarter and the company's management is upbeat about medium-term prospects. Nomura also notes that the Q4 numbers were below estimates with respect to the top and bottom lines; however, it maintained a ‘buy’ rating on Dr Reddy’s with a target of Rs 5,161 apiece.

Domestic brokerage firm Kotak Institutional Equities in its report said Dr Reddy’s delivered an operating miss in 4QFY23 due to lower sales across markets, barring Europe, as well as higher marketing and R&D costs. At current valuations, the brokerage believes the healthy non-US outlook is factored in and downgraded the stock to ‘reduce’ with a target of Rs 4,700 per share.

Dr Reddy’s stock has rallied 17 per cent in the past 12 months, while on a year-to-date (YTD) basis, it has gained around 7.5 per cent.

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