Shares of Dr Reddy’s Laboratories fell sharply on January 24, 2025, as investors reacted to the company’s third-quarter results, which raised concerns over its future growth prospects. The pharma giant’s shares tanked by as much as 6% in early trade. At around 9:46 am, they were trading 4.35% lower at Rs 1,233.25 on the Bombay Stock Exchange (BSE).
Revenue Dip From Revlimid Weighs on Stock
The decline in Dr Reddy’s share price came despite the company’s earnings marginally beating street expectations. However, the market’s focus was on the declining revenue from Revlimid, a cancer drug that has been a key growth driver for the company in recent years. Revlimid’s revenue contribution has begun to decline, and with its patent expiry set for January 2026, Dr Reddy’s faces the challenge of replacing this significant revenue stream.
Additionally, analysts pointed out that the drug’s margins have been shrinking, further intensifying investor concerns. The expiration of Revlimid’s patent poses a major challenge to the company’s future growth and profitability.
Analysts Weigh In on Dr Reddy’s Future
Brokerages have expressed differing views on Dr Reddy’s outlook. Analysts at HSBC have maintained a cautious stance, expressing concerns that the anticipated loss of Revlimid revenue may not be fully offset by the upcoming launch of Semaglutide in Canada in early 2026. HSBC’s analysts have maintained a ‘Hold’ rating with a target price of Rs 1,250.
On the other hand, Nuvama Institutional Equities is more optimistic, noting that the combination of Abatacept and Semaglutide could help the company retain a significant portion of its Revlimid earnings. Nuvama has reiterated its ‘Buy’ call with a price target of Rs 1,533.
Meanwhile, JM Financial sees potential in Semaglutide, believing the market may be underestimating its value. With the drug’s planned launch in Canada and 18 other markets by CY26, JM Financial believes Dr Reddy’s is well-positioned to capitalize on this opportunity. They have set a target price of Rs 1,753 for Dr Reddy’s stock.
Q3 Results: Modest Growth Amid Operational Challenges
For the October-December quarter, Dr Reddy’s reported a 2% year-on-year rise in net profit to Rs 1,413 crore. Revenue surged by 16% year-on-year to Rs 8,359 crore. While these figures were a positive development, operational challenges weighed on the company’s overall performance. Pricing pressures in the US market and the decline in Revlimid revenue negatively impacted the company’s margins. The EBITDA margin shrank to 27.5% from 29.3% a year ago.
Looking Ahead: Strategic Shifts Required
Despite the weaker-than-expected performance in the quarter and the growing concerns surrounding Revlimid, Dr Reddy’s remains focused on long-term growth strategies. The company has emphasized its plans to diversify revenue sources, but analysts are still divided on how quickly and effectively Dr Reddy’s can adapt to these changes.
As Dr Reddy’s navigates through these challenges, its ability to offset the decline in Revlimid revenue and maintain strong margins will be crucial to its future growth trajectory. For now, the market remains cautious, and investors will be closely monitoring how the company executes its strategies in the coming quarters.
