Dr Reddy’s Q1 Miss Fails to Impress: Emkay Global Says 'Reduce', But Hikes Target to Rs 1,150 — Here's Why

Despite a softer-than-expected financial performance in the April–June quarter, Emkay Global has raised its target price on Dr Reddy’s Laboratories to Rs 1,150, up from Rs 1,050 earlier. However, the firm continues to maintain a ‘Reduce’ rating, flagging structural challenges and muted earnings visibility beyond FY26.

“SG&A spend, in our view, has limited froth and room to be cut significantly, given that we (and the street), as of now, are not building in a decline in the overall top line in FY27. Consequently, our earnings estimates largely remain unchanged even as we cut our R&D spend assumptions. We roll forward to Jun-27E EPS and raise our TP by ~10% to Rs1,150 (vs Rs1,050 earlier); retain REDUCE,” Emkay stated in its report. 

For the uninitiated, SGA stands for Selling, General & Administrative (SG&A) and TP stands for Target Price. 

Also Read: Dr Reddy's Share Price Target Adjusted To Rs 1,050 Amid Margin Concerns: Emkay Report | Republic World

The upward revision in target price comes on the back of rolling forward earnings estimates to June FY27 and factoring in a lower R&D spend, which the company now intends to rein in to 7–7.5% of revenue. This strategic recalibration, driven by the post-gRevlimid environment, is aimed at preserving margins amid pressure across global markets.

“While we have argued in the past that the US business model of Dr Reddy’s (that focuses on high-value filings) does not ideally lend itself to a major rationalization in R&D spend, the management’s commentary indicates a willingness to meaningfully scale back R&D investments in a post-gRevlimid scenario to maintain margins,” added the brokerage firm in its report. 

In Q1FY26, Dr Reddy’s posted a broad-based revenue miss of around 6% versus estimates, with underperformance across the US, Europe, and emerging markets. While gross margins received a temporary lift from a Rs120 crore out-licensing income, higher selling and administrative expenses, coupled with core operational softness, led to a matching miss at the EBITDA level.

“Dr Reddy’s posted a weak revenue performance in 1QFY26, with the top line miss (~6% vs our estimates) being broad-based across markets ex-India. Higher gross margin (partly aided by an out-licensing income of ~Rs1,200mn) as well as a sharp QoQ decline in R&D spend were offset by higher SG&A, resulting in an EBITDA miss of similar magnitude (miss was higher if adjusted for the out-licensing income),” the report further added. 

The brokerage acknowledged the company's efforts to rein in discretionary costs—estimated at 500–600 basis points of potential savings—but remains unconvinced about meaningful operating leverage unless top-line momentum improves. 

While the drugmaker’s product pipeline remains active—with anticipated launches such as generic versions of Semaglutide in Canada and Liraglutide (gSaxenda)—the firm noted that pricing pressure in the US, particularly in base businesses like gSuboxone, continues to weigh on profitability.