Brokerage House Prabhudas Lilladher Sees Dr Reddy's Laboratories Reaching Rs 1400
Dr. Reddy's Laboratories Sees Improved Outlook
Dr. Reddy's Laboratories (DRRD) reported a strong fourth quarter (Q4) of FY26, despite several one-off factors, including a shelf stock adjustment of gRevlimid. Adjusted for these factors, the company's base business earnings before interest, taxes, depreciation, and amortization (EBITDA) stood at INR12 billion, with an operating profit margin of around 15%. This is expected to improve with the launch of Semaglutide across key markets and moderation of overheads, which will be crucial for margin recovery.
The company's domestic and Russia sales continue to be on a strong footing, providing a solid foundation for growth. Prabhudas Lilladher's research report suggests that Dr. Reddy's can scale up its base business margins from the current level of 15-16% to around 21% in FY28E. This improvement is expected to be driven by timely launches like bAbatacept, which can accelerate profitability from H2FY28.
Outlook Upgrade
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Prabhudas Lilladher has upgraded its stock recommendation for Dr. Reddy's Laboratories from Reduce to Accumulate, with a revised target price of 1400/share (23x FY28E EPS). The research firm has also cut its FY27 and FY28E earnings per share (EPS) by 3-6%. Dr. Reddy's has been investing cash flow from gRevlimid to build its pipeline across peptides, biosimilars, and GLP products, and the benefits of this strategy are expected to become visible from FY27.
Valuation and Risks
At its current market price, Dr. Reddy's Laboratories is trading at a valuation of 21x P/E on FY28E. While the company's outlook is improving, slower scale-up in the Semaglutide opportunity is a key risk to this positive call.
| Company | FY27E EPS | FY28E EPS | P/E (FY28E) |
|---|---|---|---|
| DRRD | 21x | ||
| -3% to -6% from previous estimate |
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Note: The table above presents a comparison of Dr. Reddy's Laboratories' FY27 and FY28E EPS with its previous estimates and the current P/E valuation.
Investor Takeaway
Investors should consider upgrading Dr Reddy's Laboratories stock to Accumulate with a revised target price of 1400/share.
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