Nuvama ups Dr Reddy's to 'buy' from 'reduce'; raises target price by 28%
This story was originally published at 10:56 IST on 8 January 2025
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--Nuvama upgrades Dr Reddy's to 'buy' from 'reduce', target price INR 1,553
MUMBAI – New drug launches in Canada and the US could help Dr. Reddy's Laboratories Ltd. mitigate the expected loss in revenue and operating profit due to the expiry of the Revlimid patent, Nuvama Institutional Equities said Tuesday. Although the expiry of the patent poses a high risk of revenue erosion, the company's proactive measures such as early launches could help it offset the expected slowdown in earnings growth, Nuvama said. The brokerage firm Tuesday upgraded the drug-maker to 'buy' from reduce and raised its target price by 28% to INR 1,553. At 0955 IST, shares of the company traded at INR 1,379.70 on the National Stock Exchange, up 2.1%.
Dr. Reddy's plans to launch the anti-obesity drug, Semaglutide, in Canada in January 2026 and a biosimilar of Abatacept in the US in 2026-27 (Apr-Mar) will likely mitigate about 80% of the expected impact on the company's operating profit due to the expiry of the patent, the brokerage firm said. Limited competition for Semaglutide and the growing burden of obesity in Canada could benefit the company, Nuvama said, and added that this will provide the company with an early lead in the global market for such drugs.
Abatacept, on the other hand, is undergoing phase-3 trials and the company is spending $80 million-$100 million on its clinical trials and development, Nuvama said. Currently, the drug has no competition, Nuvama added. Besides these launches, the company also plans to expand its Bachupally-based biosimilar manufacturing unit's capacity to 50 kilolitres from 15 kilolitres over two years. The brokerage estimates the Abatacept drug to generate revenues of $40 million for FY27 and $200 million for FY28. The margins on the drug would likely be better than the company's consolidated margins, Nuvama said.
North America region is expected to generate $1.7 billion in revenue for FY25. However, the company's revenue from North America will likely fall to $1.4 billion in FY27 due to a fall in contribution from Revlimid, while it could rise to $1.6 billion in FY28, Nuvama said. The brokerage expects a consistent decline in Revlimid's contribution to the company's revenue from Amercia. Revenue from the drug will likely fall to $60 million in FY28 from nearly $700 million expected in FY25.
In India, the company will likely benefit from its vaccine distribution partnership with Sanofi India and a joint venture with Nestle India. The joint venture combines the strengths of Nestle India and Dr Reddy's to help grow their complementary nutraceuticals portfolios for consumers across India. Strong return-on-equity profile and anti-diabetes drug distribution partnership with Novartis Pharma could benefit the company in Russia. The brokerage said the approvals and facility expansion could be a growth lever for the company in China.
The company is expected to report an adjusted net profit of INR 56.25 billion for FY25 on revenues of INR 324.1 billion, Nuvama said. While Nuvama has raised its estimates of the company's earnings by 15% for FY27, it has cut the estimates for FY26 by 3%. The brokerage expects the company to post an adjusted net profit of INR 57.71 billion for FY26 and INR 51.02 billion for FY27. The company will likely record revenues of INR 348.52 billion for FY26 and INR 345.94 billion for FY27, Nuvama said.
Dr. Reddy's Laboratories had reported a consolidated net profit of INR 12.56 billion for the September quarter on revenues of INR 80.38 billion. End
US$1 = INR 85.82
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Reported by Aman Aryan
Edited by Deepshikha Bhardwaj
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