On Wednesday, Nuvama analysts upgraded Dr. Reddy's Laboratories (DRRD:LN) (NYSE: RDY) stock rating from Reduce to Buy and set a new price target of INR1,553.00. The stock, currently trading at $15.67, sits near its 52-week high of $16.89, according to InvestingPro data, which also indicates the company maintains strong financial health with an overall score of "GREAT."
The upgrade reflects their assessment of the company's proactive strategies to counter the potential impact of the Revlimid patent expiry in 2026. Revlimid currently accounts for approximately 40% of the firm's FY24 EBITDA.
The analysts noted that Dr. Reddy's management has developed strategies to lessen the financial impact of the forthcoming Revlimid patent expiration. They expect key product launches, such as Semaglutide in Canada and the Abatacept biosimilar in the United States, to substantially compensate for the anticipated revenue and EBITDA losses.
The company's solid foundation is evident in its 12.37% revenue growth and robust gross profit margin of 59.29%. For deeper insights into Dr. Reddy's financial metrics and growth potential, InvestingPro subscribers can access the comprehensive Pro Research Report, which covers over 1,400 top stocks.
Dr. Reddy's Laboratories is projected to mitigate around 80% of the expected EBITDA impact due to the patent expiry, according to Nuvama analysts. This estimation is based on the company's timely measures to address the challenge. The analysts have valued Dr. Reddy's stock at 24 times the forecasted FY27 earnings per share (EPS), leading to the revised target price.
The positive outlook from Nuvama comes as Dr. Reddy's prepares for the challenges ahead, with a focus on the introduction of significant assets in key markets. The analysts' revision to a Buy rating indicates a favorable risk-reward scenario for the pharmaceutical company's investors. With a history of 24 consecutive years of dividend payments and consistently low price volatility, Dr. Reddy's demonstrates strong market stability. InvestingPro analysis reveals several additional bullish indicators for the company's future performance.
In other recent news, Dr. Reddy's Laboratories has been the focus of several noteworthy developments. Nomura/Instinet upgraded the pharmaceutical company's stock from Neutral to Buy, citing the potential long-term upside from GLP-1 and biosimilars. This upgrade comes despite the company's increased overheads, with research and development (R&D) and selling, general, and administrative expenses (SG&A) rising significantly in the first half of the fiscal year 2025.
Dr. Reddy's has also made substantial investments in manufacturing infrastructure, including new investments in peptide (GLP-1) APIs and injectables. These initiatives are expected to contribute significantly from the fiscal year 2028, potentially addressing the current revenue-cost mismatch.
In contrast, Citi maintains a Sell rating on Dr. Reddy's stock, even as it acknowledges the potential of biosimilar Abatacept by the fiscal year 2028. Notably, the company's generic version of Revlimid has significantly contributed to its revenue.
In their Q2 FY 2025 earnings call, Dr. Reddy's reported consolidated revenues of $957 million, a 17% year-over-year increase, and an EBITDA of $272 million, a 5% increase from the previous year. Finally, Dr. Reddy's has seen significant regional growth and has entered several strategic partnerships and acquisitions.
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