Why brokerages are cautious on Dr Reddy's after third quarter earnings
Several brokerages have turned cautious on the Dr Reddy's stock, with CLSA downgrading it to 'underperform' from 'buy,' and Citi and Antique both issuing 'sell' recommendations, revising their target prices downwards.
The third quarter earnings of Hyderabad-based Dr Reddy's Laboratories (DRL) exceeded market expectations. DRL's Q3 revenues rose 7%, surpassing analysts' projections of a 2% growth. Margins were at 29% while profit at ₹1,370 crore was also better than estimates of ₹1,300 crore.
This revenue increase was primarily attributed to strong sales performance in the US pharmaceutical market. US sales were $403 million, versus estimates of $355 million.
Revlimid generic contribution improved by around $5 to $15 million on a quarter-on-quarter basis. Europe did well, it was up around 15% year-on-year.
Despite subdued business performance in the Indian market during Q3, DRL remains optimistic about achieving double-digit growth in the coming quarters. The company has a margin guidance of around 25%.
However, some analysts are cautious regarding the sustainability of DRL's profitability, citing concerns over core profitability and operational challenges.
The Bachupally plant observations which are around 10 to the FTO-3 unit remain a concern and something that the street would be watching.
Several brokerages have adopted a cautious stance on the stock, with CLSA downgrading it to 'underperform' from 'buy,' and Citi and Antique both issuing 'sell' recommendations, revising their target prices downwards.
DRL's stock has run up more than 35% over the past year and is trading at around 22 times one year forward.
(Edited by : Shweta Mungre)
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