Dr Reddy’s dives 9% as analysts downgrade stock after June quarter2 min read . Updated: 27 Jul 2016, 11:08 AM IST
The stock touched a low of Rs2,995, down 9.87% from its previous close, its steepest fall since 26 November 2015
Mumbai: Shares of pharmaceutical company Dr Reddy’s Laboratories Ltd on Wednesday fell as much as 9.87%, their sharpest decline in eight months, after brokerages downgraded the stock and cut its target price after the firm reported lower-than expected earnings.
The stock touched a low of ₹ 2,995, down 9.87% from its previous close, its steepest fall since 26 November 2015. The stock is now down for the fifth consecutive session, losing 18.5% in this period. So far this year, it is down 3.2%.
Broking firms such as Credit Suisse, CLSA, Jefferies India, HSBC, Prabhudas Lilladher, Goldman Sachs, Edelweiss Securities, Motilal Oswal, and JP Morgan have downgraded the stock and cut its target price.
Dr. Reddy’s Laboratories on Tuesday said June quarter net profit fell 80% due to weak sales in North America and loss of business in Venezuela. Net profit fell to ₹ 126.3 crore in the quarter ended 30 June, from ₹ 625.7 crore in the year-ago period, while net sales fell 14% to ₹ 3,234.5 crore. Its Ebitda (earnings before interest, taxes, depreciation and amortization) margin declined by 14.2 percentage points.
“Results confirm fears that pricing pressure and concentration of business in US are undermining Indian generic drug makers’ earnings. Management indicates continuing pressures include injectables business competition, ending of contract manufacturing deal at Shreveport plant," Jefferies India said in a note to its investors.
Revenue and profit were impacted by a decline in volume growth, particularly in the US and the loss of business in Venezuela. Other challenges included price erosion and delayed launches following a warning letter (for alleged violations of manufacturing standards) from US drug regulators, which significantly impacted the company’s earnings, Mint reported.
“Although long-term fundamentals remain intact, the stock will remain range bound in the near term due to regulatory concerns and pricing pressure in the US", brokerage Motilal Oswal wrote to its investors.
Credit Suisse has downgraded the stock to Underperform from Neutral and cut its target to ₹ 2,750 a share from ₹ 3,070 a share, while CLSA has downgraded the stock to Outperform from Buy cutting its target price to ₹ 3,680 from ₹ 3,735 a share. HSBC has downgraded the stock to Reduce from Hold and kept the target price at ₹ 2,700 a share. Another domestic brokerage Prabhudas Lilladher has downgraded the stock to reduce from accumulate and kept 12-month target price at ₹ 2,945 a share. Jefferies India cut the stock to underperform from hold and lowered its target price to ₹ 2,850 from ₹ 3,000 a share. Goldman Sachs has maintained its neutral rating on the stock and cut its price target to ₹ 2,970 a share from ₹ 3,200 a share. JP Morgan has maintained its overweight target on the stock and cut its target to ₹ 3,550 from ₹ 3,600 a share.
Of the analysts covering the stock, 17 have a ‘buy’ rating, 19 have a ‘hold’ rating, while 13 have a ‘sell’ rating, showed Bloomberg data.