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Home >Markets >Stock Markets >Dr Reddy's shares continue to bleed. Is it a 'buy on dip' opportunity?

Dr Reddy's share price: After hitting 10 per cent lower circuit on Tuesday, Dr Reddy's shares have further extended its downside trend and crashed more than 3 per cent in the intraday trade session. According to stock market experts, this heavy beating in the pharma stock is mainly due to the lower than expected Dr Reddy’s Q1 results. They said that markets were expecting rise in its profit while it reported slump in its quarterly profit. However, they maintained that such dip in Dr Reddy's share price should be seen as an opportunity to take 'positional call' in the counter as triggers like Sputnik vaccine manufacturing in India from September this year and fear of third wave are still around.

Speaking on the triggers that is expected to favour Dr Reddy's shares in near term; Ravi Singhal, Vice Chairman at GCL Securities said, "The recent beating in Dr Reddy's stock is due to the below par quarterly results of the company. But, it is a short-term sentiment that is expected to fade away in next one to two trade sessions. One should look at taking positional call in the counter at this juncture as it has slipped around 14 per cent in the last two trade sessions."

Asked about the triggers aiding Dr Reddy's shares; Ravi Singhal of GCL Securities said, "Dr Reddy's is going to start manufacturing of Sputnik vaccine in India from September this year that is expected to work as big trigger for the company's stock. Apart from this, we are once again witnessing rise in cases of Covid-19 in various parts of India and abroad, which reflects that third wave of Covid-19 is still around. If that happens, there will be huge demand for Covid vaccines — a situation that augurs well for Dr Reddy's share price outlook."

Standing in sync with Ravi Singhal's views; Sumeet Bagadia, Executive Director at Choice Broking said, "Dr Reddy's shares have strong support at 4400 and one can initiate buy in the counter below 4600 mark for the immediate target of 5,000 maintaining stop loss at 4400."

Highlighting the positives that may help Dr Reddy's share price rally; Kunal Dhamesha, Research Analyst at Emkay Global Securities said, "After the sharp correction in the stock price following the result announcement, the stock is trading at an attractive P/E multiple of 24 against the historical average P/E multiple of 26," adding, "(Dr Reddy’s Laboratories) Management alluded that profitability will improve meaningfully from Q2, driven by the ramp-up of recently launched products, higher growth in the branded markets and an increase in API scale. Management also reiterated its long-term EBITDA margin guidance of 25 per cent."

Kunal Dhamesha of Emkay Global Securities advised stock market investors to buy Dr Reddy's shares for one year target of 5,755 per stock levels.

On strategy for those who hold Dr Reddy's stocks in their portfolio; Yash Gupta, Equity Research Associate at Angel Broking said, "We suggest investors to hold Dr Reddy's Laboratories limited at this level as we believe that all the short term negatives have been priced in the stock price. We are not recommending to follow the buy on dips strategy on Dr Reddy's as stock may remain under pressure for some time."

Yesterday, Dr Redd'y Laboratories limited reported a weak set of numbers, which had a big miss on gross margins as well as EBITDA margins. Company has received the Subpoena from securities and exchange commission for the production documents for allegations related to improper payments, which is not good news for the company.

Based on results by other pharma companies, we have seen some initial signs of price erosion in the USA market, which is not good news for the Indian pharmaceutical companies. Management expects margins to improve in upcoming quarters on the back of recovery in the India market and several new launches in the USA market.

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