Non-US uptick seen driving gains for Dr Reddy's Labs

Motilal Oswal Research said Dr Reddy’s Labs delivered a better than expected Q3FY26, with strong execution in India, Europe and Russia, and favourable currency movement more than offsetting the drag due to weaker contribution from the generic version of cancer drug Revlimid, resulting in an earnings beat.

Shares of Dr Reddy’s Laboratories jumped 5.3 per cent on Thursday to Rs 1,217 apiece, making it the top gainer in the Nifty 50 and the BSE 100 indices.

By comparison, the Nifty 50 was up 0.53 per cent at 25,289.

The buying on the counter came after the company reported its results for the third quarter (October-December) of 2025-26 (Q3FY26) on Wednesday, after market hours.

Analysts are broadly constructive on Dr Reddy’s Labs’ medium-term prospects despite Q3FY26 margin pressure, with views split on near-term risks.

In Q3FY26, Dr Reddy’s Labs reported a 14 per cent year-on-year (Y-o-Y) decline in consolidated net profit to Rs 1,210 crore, as compared to Rs 1,413 crore a year ago.

The firm’s revenue from operations rose to Rs 8,727 crore in Q3FY26, a 4.4 per cent Y-o-Y increase from Rs 8,357 crore in Q3FY25.

The company’s earnings before interest, taxes, depr­eciation, and amortisation (Ebitda) stood at Rs 2,049 crore, compared to Rs 2,298 crore a year ago.

What brokerages say

Motilal Oswal Research said Dr Reddy’s Labs delivered a better than expected Q3FY26, with strong execution in India, Europe and Russia, and favourable currency movement more than offsetting the drag due to weaker contribution from the generic version of cancer drug Revlimid, resulting in an earnings beat.

The brokerage cut its FY26 estimates by 4 per cent to factor in a delay in the launch of diabetes/weight control drug semaglutide in Canada, but raised FY27 estimates by 6 per cent on better growth prospects across India, Europe and Russia.

It has a “neutral” rating, with a target price of Rs 1,220.

JM Financial believes margin pressure reflects ongoing headwinds in the US market.

However, it sees strong growth excluding the US market, a rich filing pipeline, and upcoming semaglutide lau­nches providing medium-term earnings visibility, with the worst largely factored into current valuations.

In Q3FY26, the company’s operating profit margins contracted sharply by 579 basis points (bps) Y-o-Y, reflecting lower Revlimid sales, an adverse product mix, and sustained pricing pressure, although overall profitability still beat Street expectations. It has raised its target price to Rs 1,545 from Rs 1,522.

Elara Capital estimates one-off Revlimid sales of $50-60 million in Q3FY26, and believes that the opportunity window has closed.

North America’s business was down Y-o-Y and quarter-on-quarter (Q-o-Q), as expected.

All the other businesses performed in line or posted a beat.

India’s business grew 19 per cent Y o-Y, and the company expects it to sustain above 15 per cent, which is a major positive highlight.

The brokerage maintained its FY26-FY28 core earnings estimates broadly.

It has a “buy” rating target price of Rs 1,588.

Emkay Research said Dr Reddy’s Q3FY26 margin performance was in line with its expectations, and about 100 bps ahead of Street estimates on an adjusted basis (excluding one-offs).

The brokerage noted that a higher adjusted gross margin was offset by higher selling, general, and administrative spending.

While the brokerage sees limited room for further negative pipeline surprises, its base case is that FY28 earnings per share (EPS) will still be lower than FY25 earnings.

It marginally raised earnings estimates after tweaking domestic growth and forex assumptions, and rolling forward to December 2027 earnings.

The brokerage has a “reduce” rating, though it has raised its target price from Rs 1,000 to Rs 1,200.