Whalesbook
Financial Fallout Continues
Dr. Reddy's Laboratories saw its consolidated net profit for the fourth quarter of fiscal year 2025-26 fall sharply by 86.1% year-on-year to ₹221 crore. This result missed Bloomberg estimates of ₹871 crore. The primary reason for the steep decline was a significant ₹4,530 crore adjustment related to lenalidomide inventory. This one-time charge heavily impacted the company's profitability.
Additional factors contributing to the financial strain included ₹27 crore for impairments of CAR-T assets and Eftilagimod Alfa, and ₹14 crore for VAT liabilities. These exceptional items overshadowed operational performance, leading to an 11.5% year-on-year revenue decrease to ₹7,546 crore. Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) dropped 60.4% to ₹981 crore, and EBITDA margins compressed from 29.1% to 13%.
Brokerage Reactions Signal Caution
The disappointing financial results prompted brokerages to maintain cautious or bearish stances, prompting revised price targets. Morgan Stanley kept its 'Equal-weight' rating but reduced its price target to ₹1,215 from ₹1,259. The firm cited Q4 revenues and EBITDA missing expectations, a slight delay in Semaglutide uptake, and ongoing competition risks.
Citi maintained its 'Sell' recommendation with a ₹1,070 target price. Analysts noted that U.S. sales have recovered to pre-gRevlimid levels, but core profitability and U.S. revenues remain pressured. They also observed that growth outside the U.S. is increasingly impacting profit margins. Jefferies kept its 'Underperform' rating and ₹1,040 target, attributing Q4 margin weakness to a sluggish U.S. business and higher Selling, General, and Administrative (SG&A) costs, though India, Russia, and Europe remain growth contributors.
Development Setbacks Add Risk
Slower-than-expected uptake of Semaglutide and a potential setback in the Abatacept launch are significant concerns for analysts like Jefferies and Morgan Stanley. These delays introduce downside risks to the company's future revenue and profit forecasts. Investors are also awaiting updates on the pending Brazil approval.
Despite the challenging quarter, Dr. Reddy's declared an ₹8 per share dividend, with a July 10 record date. The company's focus will now shift to navigating these hurdles and achieving its development milestones.