Dr Reddy's share price falls 5% post Q4 results: Should you Buy, Hold or Sell the stock?

Stock Market Today: Dr Reddy's Laboratories share price declined 5% in opening trades on Wednesday post the company reporting its Q4 earnings performance after the market hours on Tuesday. 

Dr Reddy's share price also was the largest loser among the Nifty-50 stocks.

Dr Reddy’s Laboratories Ltd (DRL) on Tuesday reported a net profit of ₹1,307 crore for the quarter ended March (Q4FY24), rising 36% year-on-year over ₹159.2 crore in the year ago quarter. However the net profit was 5% lower sequentially compared to ₹13,738 crore seen in the December'2023 quarter.

US sales decline sequentially

Dr Reddy's North America sales contributing 45% to overall revenues though grew 29% year-on-year to ₹3262.6 Crore , however the same was 5% lower sequentially.

Dr Reddy's sales in the US market have been driven by the launch of multiple myeloma treatment drug Revlimid generics, nevertheless contributions are likely to have peaked with entry of competitors and thereby declining sequentially.

 The North America generics business decline by 3% sequentially, which was attributed largely to a decline in base business volumes and higher price erosion, by analysts at Antique Stock Broking

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Analysts watchful on US business growth

Dr Reddy's had launched 4 new products in the US as per Antiques estimates, however Dr Reddy's volume market share in its key base business products as generics of Vascepa and Ciprodex has not grown meaningfully in recent quarters as per anlysts and the company also faces stiff competition in its new launches a generics of Lexiscan and Remodulin.

Dr Reddy's remains a filer of highly competitive products like generics of Sprycel, Entresto, Forteo, Venclexta, and Dexilant. With lack of niche limited competitive launches, Antique Stock Broking does not expect a meaningful revenue growth in North America business over a two-year period

Analysts at Centrum Broking in their Q4 review results report said that they have cut their earnings estimates by 2% each for FY25 and FY26 on account of continued competition in the US generics segment and rising R&D expenses.

Analysts at Nuvama Institutional equities reckon that the core business EBITDA margin (ex-generic Revlimid) corrected 200–300bps YoY to ~17%, implying weakness in base profitability (100bps make 1%).

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Dr Reddy's reported earnings before interest, taxes, depreciation, and amortization (Ebitda) of ₹1,872 crore for the March quarter, translating to an Ebitda margin of 25.4%, though improved over ₹1631 crore in the year-ago quarter, it declined from ₹2110 Crore in the previous quarter. 

Analysts recommendations and target price

Analysts at Prabhudas Lilladher in their result review said that "The base business margins and US sales ex of Revlimid and PLI incentives continued to remain weak. Further thin US pipeline in near term and competition in certain key products remains a key risk. They maintain their ‘Reduce’ rating with target price of Rs5,700 per share; valuing at 25 time  FY26 estimated earnings per share for base business.

Analysts at Centrum Stock Broking  value Dr Reddy's on Sum-of-the-parts  basis a to arrive at a target price of ₹6,570. They have ADD ratings for the stock.

Nuvama Institutional Equities have retained ‘Reduce’ ratings on the stock with a Target price  of ₹5,028.

Antique Stock Broking maintains a Sell rating on the stock with a revised Target Price of ₹5,095

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions