First Read: Dr Reddy's "Weak Q4; revival likely to be only gradual" (Sell)

研报英文原文证据摘录

First Read: Dr Reddy's "Weak Q4; revival likely to be only gradual" (Sell)

Forecast returns

Forecast price appreciation -5.5%

Forecast dividend yield 0.5%

Forecast stock return -5.0%

Market return assumption 11.8%

Forecast excess return -16.8%

Company Description

Dr. Reddy's Labs is an Indian pharmaceutical company with presence in the US, India and

Russia, across various products (generics [branded and unbranded], over-the-counter,

biosimilars, and API) and services (custom synthesis, discovery stage biotechnology, digital

health and IT-enabled business support).

Valuation Method and Risk Statement

Sector risk - The key risks for India pharma sector where most companies get about 70-80%

of profits from US and India are (1) sharp increase in Jan Aushadhi stores can take-off 1-2%

from the growth of India Pharma market on a base of 8% CAGR (2) higher participation of

large companies in trade generic market can further impact growth of branded generics in

India (3) increase in pace of decline of US generic market with increasing new applications

approval rate from the US FDA and slowing down of patent expiries as larger part of

incremental branded revenues in the US and biologics

We value DRL on DCF (10 years explicit forecasts, 10% WACC and 4.5% terminal growth).

We believe key upside risks include: 1) higher-than-expected gRevlimid revenue in FY26; 2)

our assessment of US pipeline is largely from paragraph IV litigations and any low competition

product from the off-patent pipeline could be a positive surprise; 3) accretive use of cash can

be a positive surprise—DRL's FCF is high at Rs50bn and existing cash is also high due to

gRevlimid support in the past two years.

First Read: Dr Reddy's 13 May 2026 ab 2