Dr. Reddy’s Shares Gain Over 5% Following Q2 Margin Recovery, Despite Cautious Brokerage Outlook

Shares of Dr. Reddy’s Laboratories traded sharply higher on Monday, rising 5.41 per cent to ₹1,296 on the National Stock Exchange (NSE) as of 12.08 pm. The pharma major's stock opened at ₹1,260, touched an intraday high of ₹1,299.50, and recorded traded volumes of 58.04 lakh shares worth ₹735 crore. Market data indicated that buy orders outpaced sell orders by a 61:39 ratio, reflecting positive near-term market sentiment following the company's second-quarter earnings report released on Friday.

The positive price movement comes in spite of a mixed response from major brokerages regarding the stock's valuation and outlook. Nomura and Citi remain the most bullish firms, issuing target prices of ₹1,730 and ₹1,510 respectively, driven by the recent margin beat and upcoming catalysts involving semaglutide and abatacept. HSBC maintained a buy rating with a target price of ₹1,375. Meanwhile, Jefferies sharply upgraded its target price to ₹1,320 from ₹1,040 while keeping a Hold rating, noting that current valuations limit further upside potential. JPMorgan upgraded the stock to Neutral with a ₹1,270 target after the company underperformed the Nifty Pharma Index by roughly 14 percentage points year-to-date. Kotak retained a Reduce rating with a revised target of ₹1,220, pointing to full valuations and execution risks.

A common finding across various analyst notes was a strong adjusted EBITDA margin recovery of approximately 19 to 19.5 per cent in Q2FY27, marking a meaningful sequential improvement. This recovery was driven by a favorable business mix, ongoing cost efficiencies, and forex tailwinds. However, overall revenue came in below analyst estimates. Looking ahead, the management has provided guidance for margins to exceed 20 per cent in the second half of FY27.

Market observers are closely watching two key near-term catalysts: the resumption of semaglutide commercial supplies, which is targeted for November 2026, and the anticipated US FDA approval for abatacept IV around December 2026. Analysts highlight that abatacept alone accounts for more than 10 per cent of FY28 earnings estimates, making its approval timeline a critical variable for the company's future performance.

In a separate regulatory development, the company disclosed on Tuesday that it has received approval from the Drugs Controller General of India (DCGI) for its immunotherapy drug Zytorvi (toripalimab) to treat advanced esophageal squamous cell carcinoma. This marks the drug's second approved indication in the Indian market.

"Dr. Reddy’s recent performance highlights a classic market scenario where operational improvements, such as margin recovery and cost efficiencies, can drive positive short-term investor sentiment even when headline revenue figures fall short of expectations. For businesses and investors alike, this underscores the importance of bottom-line discipline and operational agility. However, as brokerages have pointed out, high valuations and execution risks around upcoming regulatory approvals mean that long-term value creation will depend heavily on the timely execution of key product launches like semaglutide and abatacept." — Dr. Shishir Gupta, Founder & CEO, StartupLanes