Dr Reddy's Plunges 9% After Weak Q1 Results as Global Supply Chain Woes Sink Profitability

Dr Reddy's Plunges 9% After Weak Q1 Results as Global Supply Chain Woes Sink Profitability​

Shares of Dr Reddy's tanked significantly on Thursday, falling 9% to ₹1,080 on the BSE. This sharp decline followed the announcement of a weak first-quarter performance for the financial year 2027. The company reported dips in both profitability and revenue, leading to intensified bearish outlook from several major brokerages.

Financial Performance and Core Business Challenges​

Dr Reddy's net profit stood at ₹443 crore, marking a severe 69% plunge during the quarter under review. Revenue from operations also saw a decline of 6%, reaching ₹8,071 crore compared to the same quarter last year.

The company attributed part of its challenges to a semaglutide API-related impact of ₹240 crore. This cost included inventory provisions and other associated expenses. Additionally, EBITDA margins were negatively impacted by increased solvent and freight costs stemming from the Middle East conflict.

Reported Return on Capital Employed (RoCE) stood at 5.3%. When adjusted for the semaglutide API impact, the RoCE was reported at 8%. On a positive note, Dr Reddy's maintained a net cash surplus of ₹3,058 crore.

Brokerage Reactions: Bearish Outlook Dominates Analysts​

The Q1 results triggered largely negative revisions from leading investment banks, highlighting concerns over core business margins and regulatory hurdles. Motilal Oswal maintained a Neutral rating on the stock with a target price of ₹1,121, suggesting a potential 5% downside risk.

Motilal Oswal lowered its earnings estimates by 2% for FY27 and 3% for FY28. The brokerage factored in higher operating expenses due to the Middle East conflict, along with moderate growth expectations for the PSAI segment. They noted that full recovery of earnings is anticipated from FY28 onwards.

Systematix assigned a Hold rating to Dr Reddy's, setting a target price of ₹1,183. The brokerage stated that the quarter was materially weaker than expected. A key area of concern noted by Systematix was North America revenue, which was significantly below estimates as the company recorded no generic semaglutide supplies during the quarter.

Downgrades and Guidance Woes from Dolat Capital​

Dolat Capital downgraded Dr Reddy's rating to Reduce from Buy, revising its target price to ₹1,246, which implies a 5% downside risk. This reduction came after Q1FY27 earnings fell short of expectations, even when adjusting for the Semaglutide-related inventory provision.

Dolat Capital significantly cut its FY27E and FY28E EPS estimates by 25.7% and 18%, respectively. These cuts account for lower anticipated Semaglutide sales, with management guiding for 6 to 7 million pens compared to the previous expectation of 12 million.

Regulatory Scrutiny Highlights API Quality Issues​

During the reporting period, Dr Reddy's received a Form 483 containing seven observations following a pre-approval inspection at its biologics facility in Bachupally in June 2026. The company confirmed it responded to these observations within the stipulated timeline.

The company also disclosed that certain batches of Semaglutide were found to be out of specification due to an issue associated with the Active Pharmaceutical Ingredient (API). This regulatory challenge and API quality concern is central to the market's negative sentiment surrounding the stock.