Dr Reddy’s shares in focus after Q4 profit tanks 86%; brokerages cut targets

Shares of Dr. Reddy's Laboratories are likely to remain in focus on Wednesday after the drugmaker reported a sharp decline in its March quarter earnings, weighed down by weak North America sales, margin pressure and multiple one-off charges.

The company posted a consolidated net profit of Rs 221 crore for Q4 FY26, down 86 per cent from Rs 1,589 crore reported in the year-ago period.

Dr Reddy’s said the decline in profitability was mainly due to one-time impacts during the quarter. These included an impairment loss of Rs 53.5 crore on property, plant and equipment, inventory-related provisions worth Rs 26 crore, and development programme wind-down costs of Rs 12.9 crore.

The company also recorded a gain of Rs 87.7 crore from the write-back of liabilities that were no longer required, but that was not enough to offset the overall impact of the charges.

Revenue falls as North America business weakens

Revenue from operations declined 11.5 per cent year-on-year to Rs 7,546 crore in Q4 FY26, compared to Rs 8,528 crore in the corresponding quarter last year.

For the full financial year FY26, consolidated revenue stood at Rs 33,590 crore, marking a growth of 3.2 per cent year-on-year.

The company said growth during the year remained broad-based across key markets, except North America. The decline in the US market was mainly due to lower sales of Lenalidomide and a one-time shelf stock adjustment (SSA) impact of Rs 450 crore related to the product.

Dr Reddy’s also said favourable foreign exchange movements supported overall revenue growth during the year.

The company’s EBITDA dropped 81 per cent to Rs 382 crore in Q4 FY26 from Rs 1,998 crore in the same period last year.

Operating margin contracted sharply to 5.06 per cent from 23.42 per cent a year ago.

For FY26, gross margin came in at 52.8 per cent, down 573 basis points annually. The company attributed the decline to lower Lenalidomide sales, price erosion in North America and Europe generics markets, the one-time SSA impact, and an additional provision linked to the new Labour Code in Q3 FY26.

Dividend announced; AGM on July 23

Along with the earnings announcement, the board recommended a final dividend of Rs 8 per equity share for FY26, subject to shareholder approval at the upcoming annual general meeting.

The record date for the dividend has been fixed as July 10, 2026, while the AGM will be held on July 23, 2026.

Brokerages remain cautious despite growth guidance

Global brokerages gave mixed reactions after the earnings announcement, with several firms cutting target prices amid concerns over weak US business trends and delayed semaglutide ramp-up.

Jefferies maintained its “Underperform” rating with a target price of Rs 1,040. The brokerage said Q4 earnings missed estimates even after adjusting for one-off items. It flagged weak US performance and elevated SG&A expenses as key concerns despite growth in India, Russia and Europe.

Morgan Stanley retained its “Equalweight” stance and cut the target price to Rs 1,215 from Rs 1,259. The brokerage said adjusted revenue and EBITDA were below estimates and noted that semaglutide ramp-up has been slightly delayed due to pending approval in Brazil.

CLSA maintained a “Hold” rating and raised its target price to Rs 1,270 from Rs 1,210.

Goldman Sachs retained its “Sell” rating and lowered the target price to Rs 1,050 from Rs 1,075.

Citi maintained a “Sell” rating with a target price of Rs 1,070. The brokerage said the fading gRevlimid tailwinds have exposed weakness in the base US business and added that margin pressure remains a concern.

Nomura remained positive on the stock with a “Buy” rating and a target price of Rs 1,600. The brokerage said adjusted sales were marginally ahead of estimates and highlighted management’s guidance for double-digit revenue growth across markets excluding gRevlimid contribution.