Shares of Dr. Reddy's Laboratories Ltd. have experienced a nearly 10 percent decline in the past week, following the company's announcement of a temporary suspension in commercial supplies of its semaglutide injections. The halt stems from the discovery of an out-of-specification (OOS) impurity during the active pharmaceutical ingredient (API) scale-up validation process, necessitating immediate process optimization and revalidation before commercial production can resume.
The pharma major's stock, which settled at Rs 1,236 with a market capitalization of Rs 1.03 lakh crore, has been under considerable pressure since the news broke. While the stock has remained largely flat over the course of 2026, this recent development marks a significant setback.
Brokerages Trim Estimates Amid Production Woes
Market analysts largely view the semaglutide production issue as operational rather than regulatory, with no regulatory action, product recall, or cGMP concerns reported. However, the temporary disruption has prompted several leading brokerages to revise their earnings estimates and target prices for Dr. Reddy's.
Nirmal Bang Institutional Equities, for instance, has cut its FY27E semaglutide revenue assumption to $75 million from $144 million. This reduction reflects an anticipated five-month supply halt from July to October 2026, with revenue generation weighted towards Q3FY27E and Q4FY27E. The brokerage, while maintaining a 'hold' rating and a target price of Rs 1,335, noted that the November restart timeline is contingent on a timely resolution and successful process validation.
ICICI Securities also trimmed its EPS estimates for Dr. Reddy's by 5-10 percent for FY27-FY28. The firm reiterated that products manufactured via the new process have not yet been sold, mitigating risks to existing batches. However, with Canada and India being key generic semaglutide markets for Dr. Reddy's, the supply disruption is expected to impact near-term sales and potentially necessitate increased efforts to regain market share. ICICI Securities holds an 'add' rating with a target price of Rs 1,340.
Impact on Market Share and Long-Term Outlook
Emkay Global highlighted three primary risks: potential delays in volume resumption and scale-up beyond 2HFY27, a deteriorating market landscape upon Dr. Reddy's re-entry, and uncertainty surrounding partner-driven volumes. Emkay retained a 'reduce' rating with a target price of Rs 1,300, also pointing to potential future risks if developments linked to Abatacept, a key driver for FY28/FY29E earnings, also emerge.
Systematix Institutional Equities warned that this temporary disruption could diminish Dr. Reddy's crucial first-mover advantage, potentially allowing competitors to gain earlier market entry. This could lead to moderated pricing power and reduced market share gains over the medium term. Systematix revised its FY228 semaglutide revenue estimate to $100 million, leading to an EPS estimate of Rs 63.5 and a reduced target price of Rs 1,398, downgrading the stock to a 'hold'.
Elara Capital lowered its FY27E-29E core EPS estimates by 11-15 percent due to the expected lower contribution from semaglutide and resultant margin pressures. The brokerage reduced its target price to Rs 1,283 and downgraded the stock to 'reduce' from 'accumulate', emphasizing that quick resolution of the semaglutide API issues and timely approval of biosimilar abatacept will be key upside risks.
Despite the near-term challenges, most analysts remain cautiously optimistic about Dr. Reddy's long-term growth prospects. Management expects to rectify the impurity issue and resume production by September 2026, with market supplies restarting in November 2026. PL Capital maintains an 'accumulate' rating with a target price of Rs 1,400, noting that a delay in re-entry of semaglutide beyond H2FY27 remains a key risk. The company's ability to scale up semaglutide production and ensure timely launches of other key products like biosimilar abatacept will be crucial for accelerating profitability from H2FY28E.