Dr Reddy Stock Jumps as Nomura Predicts Major Re-Rating Driven by Shift to Branded Generics Portfolio

Dr Reddy Stock Jumps as Nomura Predicts Major Re-Rating Driven by Shift to Branded Generics Portfolio​

Shares of Dr Reddy's Laboratories saw a significant surge on Monday, trading at Rs 1,289 and climbing 1.33 percent. The gain placed the stock among top Nifty performers, driven by a strong 'buy' rating issued by Nomura. The brokerage believes that the company’s intensified strategic focus on branded generics and consumer healthcare is set to fundamentally support earnings growth and drive a substantial re-rating of the stock.

Stock Gains Amid Strategic Shift Focus​

Dr Reddy's shares outperformed the broader market indices, even as the company navigates near-term business challenges. While the current day saw strong gains, the stock had seen a decline of approximately 2.2 percent over the past year, lagging behind the Nifty 50’s 3.3 percent fall.

Nomura maintained its bullish stance on the pharmaceutical major, setting an ambitious target price of Rs 1,740 per share. This projection implies that Dr Reddy's stock possesses an upside potential of around 37 percent from its previous closing price.

Nomura Backs Branded Generics as Key Growth Driver​

The brokerage highlighted that Dr Reddy's strategy is deliberately pivoting toward branded generics and consumer healthcare businesses. Recent acquisitions and management restructuring activities are specifically aimed at strengthening this high-value branded portfolio across key markets.

Nomura maintains that the shift in revenue mix towards these branded products will be instrumental for stronger long-term earnings growth. Although expanding commercial footprint is projected to increase costs by 4-5 percent of sales, the firm believes the resulting improvement in product mix and market positioning will eventually more than offset this expenditure.

Q1 Challenges Contextualize Market Reaction​

The positive brokerage outlook comes after a challenging financial performance during the January-March quarter for the drugmaker. Dr Reddy reported a sharp decline in profitability during that period, with net profit falling to Rs 220 crore from the Rs 1,587.3 crore recorded a year earlier.

This weak performance was largely attributed to intense competition and price erosion in its generic version of Lenalidomide. Consequently, revenue from operations fell 12 percent year-on-year to Rs 7,516.2 crore, while EBITDA declined sharply by 60.4 percent to Rs 981 crore. The EBITDA margin contracted significantly to 13 percent from the 29.1 percent recorded in the corresponding quarter last year.

Diversification and Long-Term Stability​

Despite the immediate pressures facing its US generics business, Nomura suggests that the growth exposure into branded medicines offers crucial diversification potential. This expansion helps reduce reliance on a few large generic opportunities. The brokerage ultimately believes this shift supports a more stable trajectory for long-term growth.