Neutral Dr Reddys Laboratories; target of Rs 1180: Motilal Oswal

What happened

Motilal Oswal said Dr Reddys Laboratories reported in-line revenue for 2QFY27, while EBITDA and PAT came in 30% ahead of its estimate after adjusting for one-time income. It set a target price of Rs 1180, valuing the stock at 20x 12-month forward earnings.

Confirmed

Global impact / market context

A higher target price signals the broker still sees value, but it cut FY27 and FY28 earnings estimates by 3% and 2%. That means expected profit is lower, even as the stock target stays positive, so future profit delivery matters more than the headline beat.

Analyst inference

The profit beat came from limited competition products like g-Bosutinib in North America and strong domestic formulation execution. North America sales of USD264m rose after six weak quarters. The broker expects a wait before abatacept sales build and softer demand for PSAI products.

Analyst inference

What to watch

1. North America quarterly sales reached USD264m, the first improvement after six quarters. Watch whether this level holds, since it drove much of the profit beat and supports the broker's valuation. Confirmed
2. Watch how quickly abatacept sales build after formulary additions. The broker describes a gestation period, meaning a waiting phase before sales ramp up, and this delay is why earnings estimates were reduced. Analyst inference
3. Track demand for PSAI segment products, which the broker calls moderate. If demand stays soft, revenue and profit may undershoot the reduced FY27 and FY28 estimates that underpin the Rs 1180 target. Analyst inference

Evidence

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