Shares of Dr. Reddy's Laboratories Ltd. experienced a significant downturn in Thursday's trade, plummeting 6.49 percent to hit a low of Rs 1,261.20. The sharp decline followed an announcement from the pharmaceutical giant to stock exchanges concerning an issue with certain batches of its weight-loss drug, semaglutide.
The company disclosed that specific batches of semaglutide were found to be out of specification. This issue has been directly linked to a problem with the active pharmaceutical ingredient (API) used in the product. As a result, Dr. Reddy's stated that commercial supplies of the drug would be delayed for an unspecified period until the issue is fully resolved.
Company Assures Patient Safety Unaffected
Despite the supply delay, Dr. Reddy's Laboratories provided reassurance that the API issue poses no impact on patient safety. The company also confirmed that the incident does not affect its existing global regulatory filings for the product. "We are investigating the root cause and taking appropriate measures to ensure product quality," the company stated, reiterating its commitment to reliable global supplies of this crucial metabolic therapy.
The pharma major is scheduled to host a conference call later today to discuss the matter further and address investor queries, aiming to provide transparency regarding the situation.
Analyst Views and Future Outlook
Choice Institutional Equities, a brokerage firm, acknowledged the immediate headwinds but maintained a positive long-term outlook for Dr. Reddy's. They view the impact as largely one-off in nature. The brokerage anticipates strong growth visibility for the company, driven significantly by the expected launch of semaglutide in India, Canada, and Brazil in fiscal year 2027 (FY27E), where competition from other Indian players in Canada is projected to be limited.
Furthermore, planned biosimilar launches and innovative product introductions in India are expected to contribute to margin expansion. Factoring in the recent one-off impacts, Choice Institutional Equities revised its FY27 and FY28 earnings estimates downwards by 12.5 percent and 10.4 percent, respectively. However, recognizing the company's evolving portfolio towards complex generics, biosimilars, and innovative products, the brokerage raised its target multiple by 10 percent. The revised target price stands at Rs 1,335 with an 'ADD' rating, implying a PEG ratio of 0.7x, which reinforces the attractiveness of its valuation.