Dr. Reddy's Laboratories shares will react to weak Q1 after US-listed ADR falls 10%

Shares of Hyderabad-based drugmaker Dr. Reddy's Laboratories Ltd. will be in focus on Thursday, July 23, after reporting a weaker-than-expected quarterly performance for the June quarter. The company's American Depository Receipts (ADRs) or those shares listed in the US, fell 10% overnight, in response to the results.

Brokerage firm Motilal Oswal has maintained its "neutral" rating on the stock but has cut its price target down to ₹1,125, which implies a downside potential of 5% from Wednesday's closing levels. The brokerage has cited the current earnings trajectory and valuations behind their "neutral" stance.

"With work-in-progress for resolving the Semaglutide-related regulatory issue, commercial benefits from b-abatacept expected from the fourth quarter of this year and a higher base in FY26, we expect earnings to decline in FY27 and then revive FY28 onwards," the brokerage note said.

Dr. Reddy's first quarter profitability was hit by a ₹240 crore Semaglutide API provision. However, revenue growth was weaker than expectations due to the US business, which was affected due to the lower Revlimid generic sales from last year. Revenue from the North America business fell 35% from last year to ₹2,204.8 crore. The US business contributes to 27% of the company's topline.

The company's India business emerged as an outperformer, growing 17% during the quarter, higher than estimates of 13% to 14%.

Earlier this month, Dr. Reddy's had informed the exchanges that certain batches of Semaglutide were found to be out of specification due to an API-related issue in the product. The stock, as a result, had declined 6% on July 9.

The management though, does not see any further provisions on the Semaglutide issue and said that it is working on identifying the root cause of the same.

Pharma stocks also sold-off on Wednesday after US President Donald Trump said that pharma generics will have zero tariffs over the next two years but will have a 100% tariff starting August 2028, which will then be raised to 200% starting August 2029.

In a post-earnings interaction with CNBC-TV18, the management of Dr. Reddy's said that it is not practical to move manufacturing operations to the US and they will await more clarity on the subject as this is just a social media post currently and not official guidelines.

Shares of Dr. Reddy's Laboratories had ended 2% lower on Wednesday at ₹1,182.8. In the 16 trading sessions so far in July, the stock has gained in only 12 of those.

This story will be updated with more analyst recommendations.