Dr Reddy's Laboratories shares slipped 2.07% to ₹1,142.20 on Friday, July 24, 2026, marking a continued decline from the 10% drop over the last month and hitting a 52-week low amid very bearish investor sentiment. The stock crash came as investors focused on the company's weak quarterly performance, with net profit tumbling 69% year-on-year to ₹434.80 crore compared with ₹1,409.70 crore in the corresponding quarter of the previous year. The sharp decline reflects broader market concerns about the pharmaceutical company's deteriorating financial performance and ongoing operational challenges. As per Moneycontrol, the company faced significant headwinds during the quarter, with earnings hit by the semaglutide API-related impact and higher operational costs. The stock had earlier hit a 52-week low of ₹1,101, down 7% on Thursday, according to The Hindu BusinessLine.
The company recognised a ₹240 crore provision towards inventory and other associated costs after certain semaglutide batches were found to be out of specification because of an issue with the active pharmaceutical ingredient. Earlier this month, Dr Reddy's had informed the exchanges that certain batches of Semaglutide were found to be out of specification due to an API-related issue in the product. The issue forced the company to suspend production of fresh batches, resulting in additional costs during the quarter. The gross margin contracted to 46.5% from 56.9% a year earlier, a decline of about 1,039 basis points, though excluding the semaglutide-related impact, the company said the gross margin would have been 49.4%. The margin was also affected by lower lenalidomide sales, price erosion in North America and European generics, and higher solvent costs related to the Middle East crisis. Cost of revenue rose 17.2% to ₹4,316.5 crore, while gross profit declined 22.8% to ₹3,754 crore. Selling, general and administrative expenses rose 12.4% to ₹2,882 crore due to higher personnel expenses, currency movements, investments in branded businesses and higher freight costs. Research and development expenses declined 7.7% to ₹576.6 crore and accounted for 7.1% of revenue. The company is taking measures to ensure product quality and resume supplies, with appropriate measures being implemented to address the semaglutide API issue. Management does not see any further provisions on the Semaglutide issue and said they are working on identifying the root cause of the same. CLSA expects gSema issues to stabilise in November 2026, as reported by The Hindu BusinessLine.
Dr Reddy's witnessed significant revenue decline across its key markets in Q1 FY27, with revenue from North America declining 35.38% year-on-year to ₹2,204.8 crore from ₹3,412.3 crore in the corresponding quarter of the last fiscal, largely because of lower lenalidomide sales and accounting for 27% of consolidated revenue. The company also reported weaker sales of Lenalidomide, its generic version of the cancer drug Revlimid. The product had previously contributed significantly to earnings, but increasing competition has reduced both prices and market share. The decline was primarily due to lower lenalidomide sales following the loss of exclusivity and lower-than-expected contribution from new launches. However, excluding lenalidomide, the company indicated the base business continued to post double-digit growth, supported by new product launches (cancer drugs bosutinib and nintedanib) and favourable product timing. The company also faced continued pricing pressure in the US pharmaceutical market, contributing to the overall revenue decline. Q1FY27 was the second consecutive quarter of subdued quarterly North America sales run rate ($236 million). Despite these challenges, Dr Reddy's launched six products in North America during the quarter, demonstrating continued investment in the market despite current headwinds. Global generics revenue declined 4.79% year-on-year to ₹7,199.3 crore during the quarter, compared to ₹8,545.2 crore in the same period of the previous financial year. However, Jefferies noted that India, Russia and Europe recorded robust year-on-year growth, as reported by The Hindu BusinessLine.
The company demonstrated resilience in emerging markets and India, with revenue from the Emerging Markets segment reporting a robust 30.52% YoY growth to ₹1,832.8 crore, driven by new launches, higher volumes and favourable foreign exchange movement. Revenue from the India business increased 16.76% YoY to ₹1,717.7 crore, supported by new brand launches, including innovative assets and recently acquired portfolios, along with price increases and higher sales volumes. The company launched seven new brands during the quarter in India. Revenue from the India business continued to outperform the pharmaceutical market, registering 17% YoY growth, driven by the innovation franchise, new launches, price increases and volume growth. During the quarter, the company commercialised oral semaglutide and its cancer drug toripalimab crossed the ₹100 crore sales mark within two years of launch. The company also changed the operating model of the Nicotine Replacement Therapy (NRT) business temporarily, which impacted sales in Q1FY27. As per Business Standard, Co-Chairman & MD, G V Prasad noted that "our underlying base business continued to deliver healthy doubledigit growth across all key geographies," highlighting the company's diversified market performance despite overall challenges. Brokerages expect the India business to post growth of more than 10% going ahead on the back of new launches and price hikes.
Major brokerages responded to the disappointing results with bearish reactions, reflecting concerns about the company's near-term prospects and weak Q1 performance. Dolat Capital downgraded Dr Reddy's to Reduce from Buy and revised its target price to ₹1,246, implying 5% downside, after Q1FY27 earnings came in below estimates even after adjusting for the Semaglutide-related inventory provision. The brokerage said the base business margin was lower than expected and cut its FY27E and FY28E EPS estimates by 25.7% and 18%, respectively, factoring in lower Semaglutide sales, with management guiding for 6-7 million pens compared with 12 million earlier. Motilal Oswal maintained its Neutral stance on Dr Reddy's, valuing the company at 20x 12-month forward earnings, setting a target price of ₹1,125, reducing its earnings estimates by 2% and 3% after factoring in increased operating expenses due to West Asia conflict and moderate growth in the PSAI segment. Morgan Stanley retained its equal-weight recommendation with a target price of ₹1,200, versus ₹1,215 earlier, saying timely resumption of Semaglutide supplies and Abatacept ramp-up are key to meeting FY28 estimates. JP Morgan retained its underweight call with a target price of ₹1,100, attributing the margin pressure to higher SG&A and freight costs and saying weak core profitability persists despite the branded business contributing 52% of revenues. Jefferies retained its underperform call with a target price of ₹1,040, saying the first quarter missed estimates materially even after adjusting for a one-off provision, with margins declining due to weak US performance, higher raw material costs and increased SG&A spending. Citi remained the most cautious, maintaining its 'Sell' rating and lowering its target price to ₹1,040 from ₹1,070, stating that the weak quarter reinforced concerns over profitability and cutting its FY27 and FY28 earnings estimates by 24% and 8%, respectively. The company's management remains upbeat about the rest of the year and plans to focus on scouting for inorganic growth opportunities, while closely monitoring the situation regarding the proposed 200% tariffs on generic drugs in the US. Equirus Securities has turned cautious, with a 'sell' rating and target price of ₹1,039, noting that the underlying US business has remained flat (sub-$1 billion annualised) over four years, despite multiple launches, reflecting sustained pricing pressure and a dearth of high-value complex product introductions.
